Working Party on Agricultural Policies and Markets

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1 Unclassified TAD/CA/APM/WP(2016)12/FINAL TAD/CA/APM/WP(2016)12/FINAL Unclassified Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 08-Jul-2016 English - Or. English TRADE AND AGRICULTURE DIRECTORATE COMMITTEE FOR AGRICULTURE Working Party on Agricultural Policies and Markets AGRICULTURAL POLICY MONITORING AND EVALUATION 2016 PART II: DEVELOPMENTS IN AGRICULTURAL SUPPORT BY COUNTRY Contact: Václav Vojtech ( vaclav.vojtech@oecd.org) English - Or. English JT Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 Note by the Secretariat As agreed by the Working Party on Agricultural policies and Markets (APM) at its meeting in November 2015 [TAD/CA/APM/WP(2015)23], the 2016 edition of the Agricultural Monitoring and Evaluation will be partly published online only. The printed publication of the report will contain the Executive Summary, as well as Part I which will consist of Chapter 1 "Developments in Agricultural Policy and Support" and Chapter 2 "Country Snapshots". Part II (containing the full versions of the Country Chapters including the 2-page "Country Snapshots" for each of the 23 countries covered), as well as the Statistical Annex, will be available only in electronic form. This document contains Part II Developments in Agricultural Support by Country of the report entitled Agricultural Policy Monitoring and Evaluation It is circulated on OLIS as part of the following set of documents forming the 2016 report: Executive Summary [TAD/CA/APM/WP(2016)10/FINAL] Part I Developments in Agricultural Policy and Support [TAD/CA/APM/WP(2016)11/FINAL] Part II Developments in Agricultural Support by Country [TAD/CA/APM/WP(2016)12/FINAL] Statistical Annex Summary Tables of Estimation of Support [TAD/CA/APM/WP(2016)13/FINAL] Document [TAD/CA/APM/WP(2016)10/FINAL] contains the Executive Summary which will appear at the beginning of the report. Document [TAD/CA/APM/WP(2016)11/FINAL] contains Part I Developments in Agricultural Policy and Support of the report. It consists of Chapter 1 which provides a description and an overall assessment of agricultural policy developments and support and of Chapter 2 Country Snapshots. Document [TAD/CA/APM/WP(2016)13/FINAL] contains the Statistical Annex Summary Tables of Estimation of Support of the report. The Executive Summary and Chapter 1 of Part I of the report were declassified by the Working Party on Agricultural policies and Markets (APM) during its 68th session held on May 2016; Chapter 2 of Part I, Part II and the Statistical Annex are declassified under the responsibility of the Secretary-General of the OECD. 2

3 TABLE OF CONTENTS 1. AUSTRALIA Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in BRAZIL Support to agriculture Main policy changes Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in CANADA Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in CHILE Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in CHINA Support to agriculture Main policy changes Assessment and recommendations

4 Contextual information Development of support to agriculture Policy developments Main policy instruments Domestic policy developments in Trade policy developments in COLOMBIA Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in EUROPEAN UNION Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Implementation of Pillar 2 Rural Development Programmes of the CAP Trade policy developments in ICELAND Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in INDONESIA Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in

5 10. ISRAEL Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in JAPAN Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in KAZAKHSTAN Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in KOREA Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in MEXICO Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments

6 Main policy instruments Domestic policy developments in Trade policy developments in NEW ZEALAND Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in NORWAY Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in RUSSIAN FEDERATION Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in SOUTH AFRICA Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in SWITZERLAND Support to agriculture Main policy changes

7 Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in TURKEY Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in UKRAINE Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in Trade policy developments in UNITED STATES Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy instruments in Trade policy developments in Food safety and labelling policy developments in with domestic and international impacts VIET NAM Support to agriculture Main policy changes Assessment and recommendations Contextual information Development of support to agriculture Description of policy developments Main policy instruments Domestic policy developments in

8 Trade policy developments in ANNEX II.A.1 SOURCES AND DEFINITIONS OF CONTEXTUAL INDICATORS Tables Table 2.1. Australia: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.2. Brazil: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.3. Canada: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.4. Chile: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.5. China: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.6. Colombia: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.7. European Union: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.8. Iceland: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table 2.9. Indonesia: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Israel: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Japan: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Kazakhstan: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Korea: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Mexico: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table New Zealand: Estimates of support to agriculture Table Contextual indicators

9 Table Productivity and environmental indicators Table Norway: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Russian Federation: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table South Africa: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Switzerland: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Turkey: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Ukraine: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table United States: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Table Viet Nam: Estimates of support to agriculture Table Contextual indicators Table Productivity and environmental indicators Figures Figure 2.1. Australia: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure 2.2. Brazil: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure 2.3. Canada: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure 2.4. Chile: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade,

10 Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure 2.5. China: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure 2.6. Colombia: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure 2.7. European Union: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Share of measures in Pillar 2 payments Figure 2.8. Iceland: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure 2.9. Indonesia: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Israel: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Japan: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Kazakhstan: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture

11 Figure Korea: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Mexico: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure New Zealand: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Norway: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Russian Federation: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure South Africa: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Switzerland: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Turkey: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Ukraine: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade,

12 Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure United States: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Figure Viet Nam: Level, structure and evolution of agricultural support Figure Main economic indicators, Figure Agro-food trade, Figure Composition of agricultural output growth Figure Composition of agro-food trade, Figure Environmental indicators for agriculture Boxes Box Basic Plan for Food, Agriculture and Rural Areas

13 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 1. AUSTRALIA Support to agriculture 1. Support to producers in Australia has continuously been reduced from already relatively low levels in and at 1.3% its Producer Support (PSE) is the second lowest in the OECD (Figure 2.1). Total support to agriculture (TSE) amounted to around 0.1% of GDP in recent years. General services support (GSSE) makes up the largest share of total support, with the main elements funding for the Agricultural Knowledge and Innovation System and the development of infrastructure, which respectively account for 58% and 31% of GSSE expenditure. Payments based on input use and on income are the most important elements of the low Producer Support Estimate. 2. Reforms have led to domestic prices that are at parity with world prices, and Market Price Support (MPS) is zero. The share of potentially most distorting support has been reduced from 86% of PSE in to 7% in At the same time, agricultural support in Australia has shifted towards more targeted direct payments and the share of general services in total support has increased from 6% to 58%. Figure 2.1. Australia: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Panel B. Producer Support Estimate as % of gross farm receipts (%PSE), Million AUD Producer Support Estimate General Services Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million AUD Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Australia OECD Main policy changes 3. In July 2015, the Australian Government released the Agricultural Competitiveness White Paper, which sets the broad parameters to guide the development of future Australian agricultural policy. The White Paper seeks to identify approaches for growing farm profitability and boosting agriculture s 13

14 contribution to economic growth, trade, innovation and productivity. The government also released a white paper to unlock the potential of Northern Australia. 4. The Government continued to implement drought assistance measures such as specific support payment for farmers experiencing financial hardship, a tax-advantaged savings scheme, and drought concessional loans programmes (loans at below market interest rates). Also, in late 2015 the Queensland parliament passed a new act to regulate the ownership of refined sugar in the Sugar Industry, in response to concerns from cane growers over competition issues. The major event in trade polices was the signing of the Trans-Pacific Partnership (TPP) agreement between Australia and 11 other members in February Assessment and recommendations There has been continuous and significant progress on policy reform since , reducing the level of support to agriculture as measured by the %PSE to close to 2%. Australia also removed the potentially most distorting forms of support in the early 2000s. The remaining support programmes are targeted to risk management, environmental conservation and provision of general services. Since the end of the Exceptional Circumstances programmes in 2013 Australia has continued to reform its drought policies. An Intergovernmental Agreement is now in place that aims to focus drought support measures on encouraging drought preparedness and resilience. Most policy measures have moved in this direction, however, new drought assistance measures implemented in 2014 have reintroduced concessional loans (loans at below market interest rates). These measures, as well as the new Act passed in 2015 in the Sugar industry, should be reviewed. The overall challenge for the future is to improve the economic viability of farms while ensuring a sustainable use of scarce resources, in particular, water. In this light, water market reforms and basin management should continue to be a policy priority. Australia should continue using its industry partnership arrangement through rural research and development corporations (RDCs) to foster innovation and the adoption of new technologies and practices, in order to improve productivity growth. 14

15 Table 2.1. Australia: Estimates of support to agriculture 15

16 Contextual information 5. Australia is the world s 12th largest economy and the sixth largest country by land area. It has a high GDP per capita and relatively low unemployment rates. While the largest share of total land is comprised of desert or semi-arid land, characterised by old and low fertile soils, Australia nevertheless is an important producer of agricultural products. It has a comparative advantage in extensive broad acre agriculture (essentially non-irrigated crops such as wheat, cattle and sheep) because of a relative abundance of land mostly suited to livestock grazing on native vegetation. Australian agriculture has a strong export focus and maintains a consistently positive and sizeable agro-food trade balance. Figure Main economic indicators, % Real GDP growth Unemployment rate Source: OECD Factbook statistics. Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Source: UN Comtrade Database. Agro-food imports Table Contextual indicators Australia International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 1% Population (million) % 0.7% Land area (thousand km 2 ) % 10.1% Agricultural area (AA) (thousand ha) % 14.8% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. -100% 0% 100% 200% 300% * 16

17 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 6. Productivity growth has been central to the continued viability, and competitiveness, of Australian farm businesses. Over time, productivity growth has helped maintaining farm profitability and has driven output growth in Australia. Total factor productivity (TFP) growth is close to the OECD average at around 1.6% per year over the period from 2003 to Agriculture consumes a high share of Australia s relatively scarce water resources. Low water availability, which will be accentuated by climate change, is a principal factor limiting the expansion of agricultural activities. Agriculture is also the dominant source of both methane and nitrous oxide and emits around 16% of Australia s total greenhouse gas emissions. Figure Composition of agricultural output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 1.6% -0.2% -0.5% 1.7% 0.4% 0.5% -1.0% Australia World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Exports % Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Australia Imports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en 12 Energy consumption 64 Processed for consumption Processed for industry % OECD Australia 7 16 GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 3.12% 1.64% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% * 17

18 Development of support to agriculture 7. Support to producers in Australia has continuously been reduced from already relatively low levels in Policy reforms have also changed the composition of support to agriculture. Market price support has been reduced to zero, there has been a shift towards more targeted direct payments, and the share of support to general services has increased. Producer support is currently less than 2% of receipts. Producer support rebounded slightly in to 5% PSE due to a peak in expenditure on drought support, but since that time support has fallen further and is currently down to 1.3%. PSE as % of receipts (%PSE) Support to farmers as measured by the %PSE declined from 10% in to 2% in Most of the decline in recent years is due to the reduced support under the drought policy % 6% 10% Potentially most distorting support as % of PSE The share of potentially most distorting support (based on output and variable input use without input constraints) has decreased significantly over time, and accounts for 7% of the PSE in Market price support is zero % 71% 86% Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers in were 1.08 times higher than world prices, compared to parity with world prices in TSE as % of GDP Total support was 0.7% of GDP in , declining to 0.1% by The share of expenditures on general services (GSSE) in total support (TSE) has increased, from 6.2% in to 58% in % 0.4% 0.7% Decomposition of change in PSE, 2014 to 2015 Transfer to specific commodities (SCT), % Price Gap 0% MPS Payments based on output Other SCT -1.3% PSE MPS -1.3% Quantity 0% Sugar BUDGETARY PAYMENTS Milk The level of support decreased by 1.3% in 2015, mainly due to decreased budgetary payments related to environmental programmes. 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The share of Single commodity transfers (SCT) in the PSE is virtually zero. 18

19 Description of policy developments Main policy instruments 8. Australia s agriculture sector remains strongly market oriented. It receives no market price support, with domestic and international prices aligned. Agricultural support is mainly provided by budgeted programmes as well as through regulatory arrangements and tax concessions. Budget-financed programmes are mainly used for structural adjustment, temporary assistance during droughts, and for natural resource and environmental management. With a low level of direct government support to farmers and no permanent farm subsidy scheme, research and development (R&D) programmes are a major component of Australian support to agriculture. Rural research and development corporations (RDCs) are the Australian Government s primary vehicle for supporting rural innovation and drive agricultural productivity growth. RDCs are a partnership between the government and industry created to share the funding and strategic direction setting for primary industry R&D, investment in R&D and the subsequent adoption of R&D outputs. A levy system provides for the collection of contributions from farmers to finance RDCs, and the Australian Government provides matching funding for the levies, up to legislated caps. 9. Australia has negligible tariff protection on imports of agriculture and food products, and its agricultural trade policy is directed towards seeking further market opening in multilateral, bilateral and regional trade agreements. Australia has ten comprehensive FTAs in force, both regional and bilateral, with New Zealand (ANZCERTA 1983), Singapore (SAFTA 2003), Thailand (TAFTA 2005), the United States of America (AUSFTA 2005), Chile (Australia-Chile FTA 2009), the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA 2010), Malaysia (2013), Republic of Korea (KAFTA 2014), Japan (JAEPA 2015), and China (ChAFTA 2015). Domestic policy developments in Major policy developments include the release of a new agricultural competitiveness framework; implementation of drought support programmes; competition policy changes for the sugar industry; alterations to inward foreign direct investment (FDI) policy for agriculture; and changes to Australia s biosecurity arrangements. 11. In July 2015, the Australian Government released the Agricultural Competitiveness White Paper which sets the broad parameters to guide the development of future Australian agricultural policy. The White Paper seeks to identify approaches for lowering taxes on farmers, putting in place clearer drought support measures, improving regulatory effectiveness, building infrastructure, encouraging trade, developing northern Australia and supporting business to innovate and create jobs. 12. The government also released a white paper on Developing Northern Australia which focuses on building priority roads, allowing more diverse use of land, developing water resources, removing red tape, building a sustainable workforce and ensuring effective governance arrangements. Policies to deliver on both White Papers will be successively developed in the coming years. 13. Building on the 2013 Intergovernmental Agreement on National Drought Program Reform, the Government continued to implement drought assistance measures in a number of states and territories. These measures included the Farm Household Allowance a farmer specific support payment for those experiencing financial hardship (not only related to drought) which replaced previous drought-rated household support programmes; the continuation of the Farm Management Deposits programme (a tax advantaged savings scheme); and the drought recovery concessional loans and drought concessional loans programmes (loans at below market interest rates). Funding was also added to the existing state 19

20 government water infrastructure fee rebates and pest animal management programmes. Previous reviews of drought policy in Australia have criticised the use of interest rate and transaction based subsidies as ineffective and inefficient responses to achieving the stated objectives of Australia s drought policy framework that of encouraging farmers to improve their preparedness and resilience to droughts (PC 2009; Kimura and Antón, 2011). 14. In December 2015, the Queensland parliament passed a Sugar Industry (Real Choice in Marketing) Amendment Act 2015 in response to concerns from cane growers over competition issues in the sugar value chain and disputes over the ownership (and therefore share in value) of refined sugar. This Act goes against reforms that removed government influence in determining the terms of sale of sugar that were introduced in 2005 amidst a range of deregulation initiatives for the industry. The Act represents a step back towards greater government involvement in the sector. The Act is intended to provide greater choice to growers in the marketing of the final sugar product and provides a means to the resolution of disputes between growers and millers. In essence it shifts some of the decision making powers on marketing from the miller to the grower. However, in the Regulatory Impact Statement (the statutory test of whether a piece of legislation is likely to lead to net benefits for the community from its introduction) prepared by the Queensland Productivity Commission (QPC), it was found that the costs of the Act would outweigh the benefits created (QPC, 2015). The QPC found that there was not sufficient evidence of market failures in the current marketing arrangements to warrant further government intervention. The potential effects on ownership rights of processed sugar, potential for more costly contract negotiation and the sanctioning of possible anticompetitive behaviour where expected to create net costs from the new Act (QPC, 2015). The QPC also questioned validity of some aspects of the Act under the national competition law. 15. In 2015 the Australian government brought in a new foreign investment framework, which increases oversight of overseas investment in Australian agricultural land. The framework changes the thresholds for review of agricultural land purchases by Foreign Investment Review Board (FIRB) such that purchases worth more than AUD 15 million (USD 11 million), or when a foreign owner takes a direct interest of AUD 55 million (USD 41 million) or more in an agribusiness come under the purview of the FIRB. It also established a register of foreign ownership of agricultural land. Consistent with Australia's Free Trade Agreement (FTA) commitments, the cumulative AUD 15 million threshold (USD 11 million) will apply to all privately-owned foreign investors except those from the United States, New Zealand, Chile, Singapore and Thailand. 16. The Biosecurity Act 2015 replaced the Quarantine Act 1908 on June The primary objective of the Act is to manage biosecurity risk. This requires powers to identify, assess and manage biosecurity risks in relation to goods and conveyances, and onshore pest or disease incursions. The Act strengthens Australia s ability to manage biosecurity risks. Trade policy developments in In February 2016, Australia signed the Trans-Pacific Partnership (TPP) agreement with eleven other members. The agreement is expected to improve market access in the TPP region for a large range of Australian agricultural product including beef, dairy products, cereals, sugar, wine, and seafood. Overall, more than AUD 6.1 billion (USD 4.6 billion) of Australia s exports of agricultural goods will receive tariff reduction and significant preferential access through new quotas, representing close to 35% of Australia s total exports of these products (DFAT, 2016). The TPP will come into force after all the original signatories complete their own domestic ratification procedures. 18. In November 2015, Australia and the European Union agreed to commence work toward the launch of negotiations for a Free Trade Agreement. Officials are now in discussions on the next steps to launch negotiations. Traditionally, EU's exports to Australia are predominantly manufactured goods while Australia's exports to the EU are dominated by mineral commodities (fuels and mining products) and 20

21 agricultural products. This agreement is expected to improve access to the European market for Australian agricultural products including beef exports that currently fall under a tariff rate quota system. 19. Australia is engaged in six further FTA negotiations. There are two individual bilateral FTA negotiations with India and Indonesia. The four plurilateral FTA negotiations are the Gulf Cooperation Council (GCC), the Pacific Trade and Economic Agreement (PACER Plus), the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Trade in Services Agreement (TiSA). 20. In July 2015 the Australian Government announced a proposed new country of origin labelling reforms for food to provide consumers with clearer and more consistent country of origin information. As of March 2016, evaluation of the submissions received is informing the final policy settings for reform of country of origin labelling requirements for food in Australia. The government envisages having the enhanced country of origin framework in place from mid There will be a transition period of two years before the enhanced system is enforced. References PC (Productivity Commission) 2009, Government Drought Support, Inquiry Report No. 46, Canberra. QPC (Queensland Productivity Commission) 2015, Decision regulatory impact statement, Sugar Industry (Real Choice in Marketing) Amendment Bill Kimura, S. and J. Antón (2011), Risk Management in Agriculture in Australia, OECD Food, Agriculture and Fisheries Papers, No. 39, OECD Publishing, Paris, DFAT (Australian government, Department of Foreign Affairs and Trade) 2016, Transpacific Partnership Agreement, Outcome at a glance, 21

22 2. BRAZIL Support to agriculture 21. Brazil provides a relatively low aggregate level of support and protection to agriculture, reflecting its position as a competitive exporter. The level of producer support (PSE) was 3.1% of gross farm receipts in , compared to an OECD average of 17.6% (Figure 2.2). The total support estimate to agriculture (TSE) was around 0.3% of GDP in The direct support to farms (PSE) is the dominant part of the TSE (about 80%). Payments based on output and input use are the most important element of the support. As for the General Services Support Estimate (GSSE) the main element are payments on land restructuring for small family farms. 22. An important part of support to producers is provided through measures that distort farm prices and current costs although on aggregate the level of that type of support is moderate and there is a great deal of variation across commodities. While domestic prices were below world prices in the mid-1990s, generating negative market price support (MPS), prices are now almost aligned. Other important component of support to producers is support based on variable input, mainly through concessional credit and crop insurance subsidies. Credit is also available for farm investment. The role of direct payments is minor. Access to most farm support programmes is conditional on environmental criteria. Million BRL Figure 2.2. Brazil: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components, ( average) PSE GSSE Producer Support Estimate General Services Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million BRL Panel B. Producer support estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Brazil OECD Main policy changes 23. In the continuation of previous policies the agricultural plan for 2015/16 continued to provide high levels of funding for credit subsidies. The agricultural plan for 2016/17 foresees a significant development of crop insurance, using funds previously dedicated to price guarantees. Efforts to restore domestic and international confidence in the safety of food (in particular animal) products include improvements in the inspection system. 22

23 Assessment and recommendations Despite the variety of regional price support programmes, prices received by agricultural producers in Brazil are more or less aligned with international levels. In 2015 minimum guaranteed prices increased at a slower pace than inflation, and the depreciation of the BRL relative to USD further lowered price support. However, differences in support level by commodity create distortions within the sector, which should be removed. A number of initiatives, such as the development of better information and tools to analyse risk, and model contracts, were launched to improve the effectiveness of the crop insurance programme. This is expected to facilitate wider adoption, as foreseen in the agricultural plan for 2016/17, which allocates more funds for crop insurance subsidies to the detriment of funding for price support. It is essential to continue strengthening the information base to develop insurance products while using public funds efficiently, and monitor the effectiveness and efficiency of insurance subsidies, and ensure they are not crowding out market solutions. Agricultural credit at preferential interest rates has been growing consistently, in particular in recent years. Whereas the credit system is intended to address failures in financial markets, it also creates risks (default) for government and producers, particularly since the macroeconomic situation has deteriorated. The higher availability of funds for loans is partly explained by the obligation for banks to reserve a certain portion of their deposits for agricultural credit, thus potentially creating excess supply. Furthermore, most of this credit is concentrated on subsidising short-term borrowing such as working capital and commercialisation loans that further distort markets. A reform of the concessional credit system could consider a gradual downsizing of concessional loans for working capital to commercial producers, by gradually limiting the scope of eligible commercial producers and their supported activities. At the same time, access to credit by rural borrowers could be facilitated through simpler regulations and procedures. Agricultural credit support could then be re-focused to support on-farm investments that explicitly incorporate technological innovations and advanced farm management and environmental practices. Several programmes have been introduced recently to encourage environmental improvements and infrastructure development. For instance, insurance and credit support is conditioned by environmental criteria, and credit is available to modernise production systems and preserve natural resources, among others. Plans to extend irrigated areas foresee technical improvements in water use efficiency, but should ensure water abstraction remains sustainable. Access to export markets is crucial for Brazilian agriculture. The restructuring of the sanitary and phytosanitary inspection system with a view to improve its efficiency and reliability is an important contribution to gain or re-gain foreign markets, complemented by bilateral and multilateral trade discussions. Support to family farms aims to improve farmer incomes. However, existing mechanisms for social protection could protect farmer income more effectively and direct investment in infrastructure and public investments could trigger agricultural growth, for both commercial farms and smallholders, more efficiently. While weak infrastructure is still a significant bottleneck for agricultural development, financing of general services to agriculture constituted less than 20% of total support to the agricultural sector in and over time this share tended to decline. The main part of the Brazilian GSSE is represented by agrarian reform spending, which includes government purchase of lands for resettlement and investment in infrastructure and basic communal services for those settled areas. 23

24 Table 2.2. Brazil: Estimates of support to agriculture 24

25 Contextual information 24. Brazil is among the world s ten largest economies with a GDP of USD billion and a population of 200 million in Brazil is an upper middle income country, with a GDP per capita of more than USD per year. After years of sustained growth, the economy declined by over 10% in Agriculture accounts for a declining but still significant share of GDP and employment. Brazil is endowed with a large area of agricultural land, of which over a quarter is arable and represents 30% of all arable land covered in this report. Brazilian agriculture is crop and export oriented, accounting for 37% of total exports. Brazil is one of the largest global exporters of agricultural products with a trade surplus of over USD 80 billion in Almost half of exports are primary commodity used as inputs into further processing. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Brazil International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 4% Population (million) % 5.8% Land area (thousand km 2 ) % 11.0% Agricultural area (AA) (thousand ha) % 10.4% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Average of all countries analysed Notes: * or latest available year.1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. doi: /agr-pcse-data-en. 432% * 25

26 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 25. Brazilian agricultural output has increased at an annual rate of close to 4% between 2003 and 2012, compared to a world average of 2.5%. Total factor productivity (TFP) has been the main driver of this growth and has accelerated in the 2000s compared to the previous decade. Over the period , TFP annual growth rate in Brazil was almost double the average rate of countries covered in this report. During the same period, the share of agriculture in water use increased to 62% which is high compared to the 40% average in the OECD area, but water stress is minor. At the same time, agriculture accounts for a declining share of energy use, commensurate with the share of the sector in GDP. Figure Composition of agricultural output growth average 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.4% 0.8% -0.3% Brazil 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database Imports Exports 2 Primary for consumption Primary for industry Figure Environmental indicators for agriculture 44 Processed for consumption Processed for industry % OECD Brazil Energy consumption n.a GHG emissions Water use Water stress indicator Share of agriculture in total % Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Brazil TFP annual growth rate (% ) 2.38% 3.38% 1.58% 1.74% Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en World OECD average * 26

27 Development of support to agriculture 26. Support to producers (%PSE) was 2.6% of gross farm receipts in 2015, well below the OECD average of 17.1%. However, 93% of producer support (PSE) is given through support based on commodity output or on input use, particularly through credit subsidies, debt rescheduling and rural insurance. Market price support is relatively low, and it is mostly provided through minimum guaranteed prices. NPC for 2015 was at unity suggesting that prices received by farmers are closely aligned with those in the international market. PSE as % of receipts (%PSE) Support to farmers as measured by the %PSE was 3.1% of gross farm receipts in , below the OECD average of 17.6% for the same period. Brazil has moved from taxing the sector in the 1980s and 1990s to a moderate level of support as MPS was zero for most products % 3% Potentially most distorting support as % of PSE The share of potentially most distorting support (based on output and variable input use without input constraints) accounts for 22% of the PSE in This is due to MPS and deficiency payments as since 2008 all support to variable input use is conditioned by environmental criteria % not calculated Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers were close to parity in , while they were lower than world prices in TSE as % of GDP Total support was 0.3% of GDP in The share of expenditures on general services (GSSE) in total support (TSE) varies on a yearly basis with support to producers. It was 18.6% in compared to 18.7% in not calculated % -20.4% PSE Decomposition of change in PSE, 2014 to % MPS -15.3% BUDGETARY PAYMENTS Price Gap Quantity -5.4% +0.2% The level of support in 2015 has decreased as both MPS and payments based on input use (credit and insurance subsidies) declined. While both domestic and world prices expressed in BRL declined, the fall in MPS is mainly due to the lower BRL/USD exchange rate. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Maize Rice Soybeans Sugar Milk Beef and veal Pig meat Poultry Coffee Cotton 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Single Commodity Transfers (SCT) for rice was 15% and for wheat 10% of gross receipts for the commodity. 27

28 Description of policy developments Main policy instruments 27. Agricultural policy in Brazil has three main components: market price policy, rural credit and crop insurance subsidies. There are, nevertheless, other important policy measures that contribute to the shaping of agricultural policy including agricultural land zoning and the promotion of biofuels and organic production. Agricultural policy is defined in the Agricultural and Livestock Plan administered by the Ministry of Agriculture, Livestock and Procurement (MAPA) which focuses only on commercial agriculture; and by the Family Agriculture Plan operated by the Ministry of Agrarian Development (MDA) that supports the development of small-scale family agriculture. 28. The basic element of market price policy consists of regionally set minimum guaranteed prices, which cover a broad range of crops from rice, wheat, maize, cotton, soybeans, to regional crops like cassava, beans, açaí, guaraná, sisal, and a few livestock products like cow and goat milk and honey. Given these minimum guaranteed prices, the government implements several price support mechanisms, including direct government purchases (AGF programme); premiums to commercial buyers who pay minimum prices to supply producers; and public and private options contracts backed by private risk premium option. In addition to these programmes, producers receive various reduced-interest marketing loans which enable them to withhold the sale of a product in anticipation of a higher market price. The National Food Supply Agency (CONAB) operates both the government purchase programme (AGF) set by the MAPA Secretary of Agricultural Policy (SPA) for commercial and small-scale farms, and the equivalent programme set by the MDA for small-scale agriculture (PAA programme) as well as the minimum prices programme for family farms (PGPAF programme). Under PAA, CONAB makes direct acquisitions from family farms at market prices, with the product either going into stock or distributed as part of a food programme. Guaranteed prices for small-scale farmers are based on the average regional production cost of family farms. 29. Several programmes offer deficiency payments calculated as the difference between the market price and the minimum (reference) price (e.g. PEPRO). 30. Agricultural credit is the major policy instrument for the sector and it is provided to both commercial and small-scale family farms. The National Rural Credit System (SNCR) directs credit to farmers at preferential interest rates. For commercial agriculture the SNCR system provides credit for marketing, working capital and investment. Sources of funding for this concessional credit come from compulsory resources, where banks are obliged to either hold their sight deposits as obligatory reserves at the Central Bank at zero interest rate or to allocate the same proportion in loans to agricultural activities at below market interest rates. As of June 2012, 34% of these sight deposits should be used for agricultural credit at preferential interest rate, at no cost for the National Treasury. On the other hand rural savings (Poupança Rural) are obliged to hold 74% of its sight saving deposits for agricultural credit at market or preferential interest rates as long the National Treasury decides to equalise the difference between these rates. Some investment credit allocations under SNCR are funded by BNDES and managed by MAPA like Programme ABC, Moderagro, Moderinfra, Moderfrota, PSI rural, Prodecoop, Pronamp, Procap-Agro, Inovagro and PCA. Credit for family farms falls under the auspices of PRONAF-Credit of MDA and provides only working capital and investment loans. Support is also provided to producers through debt rescheduling. Major debt rescheduling occurred during the late 1990s and early 2000s for both commercial and family producers. 31. Agricultural insurance is another important area for the government. There are four main programmes providing support either in the form of insurance premium subsidies or by compensating 28

29 farmers for production losses due to natural disasters. Two of them target commercial farmers and are administered by MAPA: the rural insurance premium programme (PSR) grants insurance premium subsidies to commercial producers who establish contracts with insurance companies listed by the government. It covers all agricultural and livestock activities, as well as forestry and aquaculture. The general agriculture insurance programme (PROAGRO) offers eligible farmers partial compensation of the bank debt on working capital loans used in production of the damaged crop and provides indemnity on loss of own resources invested in production. Most of the resources allocated by this programme are directed to the southern region and to grain crops, mainly soybeans. PROAGRO-Mais or family agriculture insurance (SEAF), and crop guarantee programme (Garantía Safra, GS) are available for family small-scale farms. GS is available to family farms enrolled in PRONAF who are located in arid areas (Northeast part of the country) and are producing non-irrigated crops. 32. In a number of programmes support is conditioned by environmental criteria. Agricultural zoning represents an important instrument linking agricultural support to environmental sustainability of farming activity. Respect of zoning rules is used as a condition of producers eligibility for concessional credit and subsidised insurance programmes. Compliance with zoning applies to all concessional credit and all insurance premium subsidies for any product covered by the zoning). Furthermore, since 2008 access to subsidised credit for agricultural production in the Amazon biome is conditional on the registration of agricultural producers and ranchers in the Rural Environmental Cadastre and the provision of information on compliance with environmental regulations, in particular land use regulations set out in the Forestry Code. 33. In addition, several specific programmes promote sustainable agricultural practices. These include credit for plantings on unproductive and degraded soils, credit for forest planting, and credit to modernise production systems and preserve natural resources (Table 6.A1 in OECD, 2015). Such programmes are designed for both the commercial and family farm segments. Domestic policy developments in With 8% inflation in 2015, regional minimum guaranteed prices were kept constant between 2014/15 and 2015/16 for basic and domestic wheat, cotton, Arabica coffee, maize, sorghum, jute, rubber, and cocoa. They were increased by about 7% for cassava, 5% for soybeans, 11% for grape, 7% for peanuts, 7-8% for most rice categories, 4.5% for bread and high quality wheat, 4.5% for winter crops (oat, canola, barley, sunflower, triticale), 7-8% for milk; and they were decreased by 16% to 18% for different categories of beans, 35. Around the turn of 2015 Brazil held quarterly auctions to sell approximately tonnes of rice from government reserves (January AMIS). In March 2015, 12 million tonnes of beans from public stocks were sold. In January 2016, the government announced the selling of tonnes of maize from public stocks. 1 In July 2015, the Federal Government authorised the purchase of up to 40 million tonnes of cassava flour in states where coted market prices fall below minimum guaranteed prices. It also authorised the donation of up to 45 million tonnes of beans from public stocks to fight food and nutrition insecurity. 36. In 2015, rubber farmers were the only recipients of deficiency payments through the PEPRO programme for an amount of BRL 15 million (USD 4.5 million). The previous year, a total amount of BRL 360 million (USD 108 million) was granted to wheat, maize, cotton producers, and for smaller amounts to rubber and orange producers

30 37. Credit resources available to commercial farmers continued to increase, by 20% from 2014/15 to 2015/16 to reach BRL 188 billion (USD 56 billion) in 2015/16. Only 20% of these resources are for investment loans, and the remaining 80% for working capital and marketing loans. However, concessional rural credit resources available for 2015/16 decreased by 2.2% compared to previous year, to BRL 130 billion (USD 39 billion). Credit resources for investment decreased by 34% to reflect developments in demand but strongly increased for working capital and marketing loans, following the increase in compulsory resources from Agribusiness Credit Bonds, which are dedicated to agriculture In 2015, the rural insurance (seguro rural) programme provided BRL 280 million (USD 84 million) in insurance subsidies to commercial producers (compared to BRL 690 million or USD 207 million in 2014). Wheat producers received 31% of all subsidies. Resources allocated to all agricultural insurance programmes amounted to BRL 700 million (USD 210 million in the 2015/16 agricultural plan. Subsidy rates range from 35% to 100% of the premium, depending on the sector and the risk coverage (MAPA, 2015). In the 2016/17 plan, resources allocated to agricultural insurance subsidies will increase by about BRL 400 million (USD 120 million) to amount to BRL 1.1 billion (USD 330 million), representing a transfer of funds from the minimum guaranteed price programme. The programme is planned to cover about 31 million hectares, compared to 10 million hectares in 2014, and 100% of the production value of the eight main crops produced in the country. 3 The coverage of wheat insurance premia decreased from 70% to 60% A number of initiatives was launched to improve the effectiveness of the crop insurance programme. They include the development of a model contract to facilitate collective negotiation for producers and obtain more attractive conditions, and better and more transparent information on programme availability, statistics on the performance of the programme, and risk analysis. In March 2016, the government announced the creation of a productivity register containing information on the productivity of Brazilian farmland, which should allow for a better estimation of risk. The new agricultural plan for 2016/17 will also strengthen collective negotiation for rural insurance contracts. 40. Biofuel production is supported via measures which include: lending to construct ethanol plants and storages; tax incentives on flex-fuel cars which can run on any combination of ethanol and gasoline; and mandatory blending ratios for both gasoline and diesel. In March 2015, the government increased the mandatory blending requirements for ethanol in regular gasoline, from 25% to 27.5%. The blending requirement for premium gasoline remains unchanged at 25% (AMIS, March 2015). The mandatory blending of 5% biodiesel with diesel remained at 7%. 41. In February 201, the Minister of agriculture presented a plan to develop transport infrastructure in the Amazon region, including roads and motorways, ports, railways and rivers, in order to reduce export costs by up to 37%. 5 For example, new port terminals will be auctioned, which will and

31 increase the export capacity by 22 million tonnes, for an investment estimated at BRL 1.8 billion (USD 540 million). 42. In March 2016, the government supported the extension of irrigated areas, noting that 30 to 45 million hectares are irrigable, compared to 6.5 million being currently irrigated. Three types of actions are envisaged: 1) the improvement of irrigation systems already in place, including demonstration areas using modern technology; 2) the construction of water, energy and road infrastructure to enable the development of irrigation; and 3) a study and plan of irrigable areas to identify areas with potential In October 2015, the government presented publically new directions for the restructuring of the Brazilian inspection system for livestock products (SIS-POA) at state, district and municipal levels, for consultation and suggestions. 7 At the national level, the Department for the inspection of livestock products will continue to provide standardised procedures and circulate information. The financial stability of the system will also be ensured at the national level. Four areas for modernisation are foreseen: the development of a harmonised legislation, the improvement of procedures for permanent (ante and post mortem) and periodic (based on risk) inspection; the increase in the number of risk expert groups; and the revision of public-private roles. An important component is initial and life-long technical and management training for staff. The objective is that all procedures and organisations in the system comply with SIS standards. 44. The new information and control system for agricultural products (platform for agricultural management, PGA), which covers animal products since 2013, will be extended to crop products and organic products in It will include information on production and transport, and use of sanitary and phytosanitary products, and aims to improve traceability, pest and disease control and inspection. Producers certified as organic by the ministry are recorded in a register. They will all be controlled at least once a year by one of the 25 certification organisations accredited by MAPA. 45. The government presented a project to improve the competitiveness of the milk chain in May It includes provision for technical assistance aiming to improve the quality of milk at the farm level and along the transport and processing chain; specific lines of credit to reduce production costs, promote investment in technology, and thus improve quality and productivity; and measures to improve animal health (in particular vaccination against brucellosis and tuberculosis). Priority will be the states of Rio Grande do Sul, Santa Catarina, Paraná, Minas Gerais and Goiás, and larger milk producers in the country. However, the project could be extended to other states Campaigns to vaccinate beef and buffalo cattle against foot and mouth disease achieved a coverage of 98.17% animals vaccinated at the end of

32 Trade policy developments in In February 2016, the State of Goias, which is the fifth largest grain producing state in Brazil, has passed legislation authorising the imposition of a tax on soybeans and corn that are exported from the state. The tax is a circulation tax called ICMS that is imposed on products that are produced in one state, but utilized in another state. Each state in Brazil is allowed to determine the amount of ICMS tax, which generally is in the range of about 9% to 12%. Since 1996, soybeans and corn that were exported from Brazil were exempt of the ICMS tax, but the state legislature has now removed that exemption In 2014 Brazil s applied MFN customs tariffs for agricultural products were entirely ad valorem, with rates ranging from zero to 55%. The simple average MFN tariff applied in 2014 was 10.2% compared to 11.7% in Close to two-third of agricultural imports entered with applied tariffs below 10% corresponding to close to three-quarters of agricultural tariff lines (WTO, 2015). 49. As of 22 June 2015, Brazil replaced a system under which imports of ethanol were taxed at 9.25% associated to an offsetting credit for importers, by an 11.75% tariff on ethanol imports (AMIS, June 2015). 50. Brazil is a founding member of the Southern Common Market (MERCOSUR), and as such is a party to preferential trade agreements with a number of countries. Bilateral trade negotiations in 2015 were to gain or re-gain market access in a number of countries. 51. In March 2015, Brazil's Minister of Agriculture discussed the expansion of beef, poultry, dairy, fruit, and wheat trade with Russia, Myanmar, Japan, South Africa, and Argentina. All of these countries are either eliminating previous trade restrictions on these products or restarting the importation of Brazilian livestock products (FAS, 2015a). In particular, Brazil agreed to sign a sanitary and phytosanitary (SPS) agreement with Russia to export wheat in July (FAS, 2015b). At the beginning of 2016, the Minister concluded the negotiation with Korea of a new international safety certificate for poultry meat. 12 An agreement was also found with South Africa for the sales of unprocessed pig meat In the course of 2015, Brazil and the United States made progress in negotiations to open US markets to beef exports from 14 Brazilian States. 14 The agreement, which is expected during the first half of 2016, would result in a reciprocal opening of markets for fresh and frozen bovine meat. 15 At the beginning of 2016, Brazil and Argentina discussed a strategy to open livestock product markets and speed

33 up negotiations for agreements with the European Union, China and the Russian Federation. 16 Brazil negotiated new rules to facilitate exports of orange juice to China. 17 References FAS (2015a), GAIN Report Number BR0973, US Foreign Agricultural Service, 8 March. 20Trade%20Opportunities_Brasilia_Brazil_ pdf. FAS (2015b), GAIN Report Number BR0972, US Foreign Agricultural Service, 31 July. o%20sign%20wheat%20sps%20agreement_brasilia_brazil_ pdf MAPA (2015a), Plano Agrícola e Pecuário 2015/2016, Ministério da Agricultura, Pecuária e Abastecimento. MAPA (2015b), various press releases, OECD (2015), Innovation, Agricultural Productivity and Sustainability in Brazil, OECD Publishing, Paris. DOI: WTO (2015), Brazil tariff profiles:

34 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 3. CANADA Support to agriculture 53. Canada has reduced agricultural support significantly since the late 1980s. Producer support as a share of receipts fell sharply between and , in large part because market price support (MPS) to the grains industry was discontinued in The decline in the level of support since then has been more gradual because there have not been any significant policy changes to MPS for dairy, poultry, and eggs. MPS for these sectors accounts for around 64% of the producer support estimate (PSE) in Lower levels of disaster payments in recent years and a shift of budgetary expenditures towards generic, not farm-specific, support to the sector since the mid-1990s have resulted in lower farm income support overall. 54. Canada s PSE declined from 36% in to 10% in , and has been consistently below the OECD average. However, the share of potentially most distorting support (based on output and variable input use without input constraints) was 70% in , above the OECD average and at a similar level to MPS for milk accounts for the largest share of potentially most distorting support. On average, prices received by farmers were 7% higher in than those observed in world markets. Since 1995, this has largely resulted from MPS for milk, poultry and eggs, as producer prices of other commodities are mostly aligned with border prices. As producer support has declined, the share of the General Services Support Estimate (GSSE) has increased in the Total Support Estimate to agriculture (TSE). The share of GSSE in TSE has almost doubled since to around 29%, as a greater proportion of budgetary transfers was shifted to indirect support, including Agricultural Knowledge and Innovation Systems and Inspection and Control. Million CAD Figure 2.3. Canada: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million CAD Panel B. Producer Support Estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Canada OECD 34

35 Main policy changes 55. The current agricultural policy framework in Canada, Growing Forward 2 (GF2), expires in There were several new initiatives under GF2 programmes in These include two new AgriRisk Initiatives, which aim to develop new risk management tools for wheat and hog producers. Producers also received CAD million (USD 7.95 million) in disaster relief payments under three AgriRecovery Initiatives. 56. Canada also made changes to the Advance Payments Program (APP), the federal loan guarantee programme that gives producers easier access to credit through cash advances. These changes broadened programme eligibility and increased programme flexibility around repayment methods and options. 57. The Canadian Food Inspection Agency has embarked on a change agenda designed to strengthen how it administers and enforces regulations within its jurisdiction that relate to food, animals and plants. Policy developments include changes to modernise regulations and the development of a policy on private certification schemes used by industry. 58. In 2015 Canada concluded negotiations towards the Trans-Pacific Partnership Agreement, creating a regional trading bloc with 11 other countries, a free trade agreement (FTA) with the Ukraine, and the modernization of existing FTAs with Israel and Chile. Assessment and recommendations 59. Canada s domestic markets for most agricultural commodities are competitive. However, the dairy, poultry and egg sectors are protected from international competition and continue to receive high market price support. This distorts production and trade and acts as a barrier to entry into those supplymanaged sectors, because high rents are capitalised in the value of quotas required to produce under the supply-management system. Over time, there has been an increasing emphasis on generic support to the sectors relative to farm income support through new programmes that target industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives. 60. There are a number of reforms that could contribute to Canada s long-term objective of improving the profitability, competitiveness and sustainability of the food and agriculture sector. As a step towards phasing out supply management, the amount of quota available should be increased and price support for the dairy, poultry and egg sectors should be reduced. This would encourage greater market responsiveness, stimulate innovation (to increase efficiency and diversify towards higher value products), and reduce quota rents, which currently act as a barrier to entry into supply-managed sectors. Stricter protocols and disciplines should be in place for ad hoc programmes. This would reduce potential pressure for additional support in situations where existing programmes suffice, and encourage farmers to find better ways to manage risk. The policy focus should continue to shift towards facilitating the adoption of innovation by targeting industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives. This would contribute to the long-term objectives of improving the competitiveness and sustainability of the sector. 35

36 Table 2.3. Canada: Estimates of support to agriculture 36

37 Contextual information 61. Canada is a large, wealthy country with a small population relative to its area. Primary agriculture accounts for less than 2% of GDP, but is important regionally. Canada is a large net exporter of agricultural products, which account for 10% of total exports, and market access is a significant issue for the sector. More than half of Canada s agriculture exports are destined to the United States. Crop production is concentrated in the western prairies, where the typical farm is twice as large as the national average, highly productive and produces largely for export. Most milk production is located in Eastern Canada, which has relatively smaller farms and a larger variety of crops. Red meat industries (hogs and beef cattle) are present across Canada, especially in Western Canada. Figure Main economic indicators, % Real GDP growth Unemployment rate Source: OECD Factbook Statistics. Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Source: UN Comtrade Database. Agro-food imports Table Contextual indicators Canada International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 2.0% Population (million) % 1.0% Land area (thousand km 2 ) % 11.9% Agricultural area (AA) (thousand ha) % 2.4% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Average of all countries analysed Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. doi: /agr-pcse-data-en * 37

38 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 62. Total factor productivity (TFP) growth is driving agricultural output growth in Canada. TFP growth averaged 1.6% between 2003 and 2012, just below the world average, and output growth averaged 1.5%, despite slower growth in the use of primary production factors. TFP has slowed in the recent decade, largely as a result of widespread adverse climate conditions. Canadian agriculture benefits from relatively abundant resources (e.g. water), and agricultural output growth has been achieved with minimal increased pressure on natural resources. Nutrient surplus intensities at the national level are relatively low and below the average for OECD countries, as are GHG emissions. Agriculture s share in energy use has increased, but remains below the OECD average. Figure Composition of agricultural output growth average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% 1.6% 0.3% 0.5% -0.5% Canada 1.7% 0.4% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Exports % Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Canada Imports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en 22 Energy consumption 52 Processed for consumption Processed for industry % OECD Canada GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 2.28% 1.60% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% * 38

39 Development of support to agriculture 63. Canada has reduced agricultural support significantly since Budgetary support is focused on mitigating farm income fluctuations due to market volatility and disaster situations. Market price support is provided to the dairy, poultry and eggs sectors through long-standing supply-management systems, and largely accounts for the share of potentially most production and trade distorting support, the NPC, and the share of SCT transfers in the PSE. PSE as % of receipts (%PSE) Significant reforms during late 1980s to early 1990s have reduced producer support as a share of receipts (%PSE) relative to the period, but the decline in the level of support since the mid-1990s has been more gradual. Support has remained consistently below the OECD average % 16% 36% Potentially most distorting support as % of PSE Market price support (MPS) to grains was discontinued in 1995, reducing the share of potentially most distorting support (based on output and variable input use without input constraints). Currently, MPS for dairy accounts for the biggest proportion of most distorting support, which is above the OECD average and at a similar level to % 67% 70% Ratio of producer price to border price Producer Nominal Protection Coefficient On average, prices received by farmers were 7% higher in than those observed in world markets. Since 1995, the NPC has resulted largely from MPS for dairy, poultry and eggs. Producer prices of other commodities are mostly aligned with border prices TSE as % of GDP Total support (TSE) relative to GDP has declined since , to 0.4% of GDP in As PSE has declined, the share of general services support (GSSE) in the TSE has increased, almost doubling since to around 29% % 0.4% 1.7% -1.6% PSE Decomposition of change in PSE, 2014 to % MPS +0.1% BUDGETARY PAYMENTS Price Gap Quantity -4.1% +2.4% The level of producer support decreased slightly in 2015 as a result of lower market price support to milk, poultry and eggs, driven by lower border prices expressed in USD which were only partly offset by the exchange rate move of the CAD against the USD. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Oats Soybeans Rapeseed Milk Beef and veal Pig meat Poultry Eggs Dried beans Dried peas Lentils Potatoes Flax 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Single commodity transfers made up 79% of the PSE in The share of the SCT in commodity receipts is particularly higher for milk, poultry and eggs. 39

40 Description of policy developments Main policy instruments 64. Canada s agricultural support policies differentiate between the supply-managed sectors (dairy, poultry and eggs), which are protected by high custom tariffs and oriented towards the domestic market, and other commodity sectors, which operate within a free market environment and are very active on export markets. A supply management system provides market price support to the dairy, poultry and eggs sectors through tariffs and production quotas that are tradable only within provinces, combined with a system of domestic price-setting. 65. Canada s agricultural policy framework prioritises risk management and investments to enhance the sector s competitiveness, marketing and trade, food safety, and research capacity. Since 2003, the main programmes and services have been delivered through joint five-year Federal, Provincial, and Territorial (FPT) agreements. The current FPT multilateral policy framework, called Growing Forward 2 (GF2), covers the period from 2013 to It builds on previous frameworks, but stresses three broad priority areas: 1) innovation; 2) competitiveness and market development; and 3) adaptability and industry capacity. 66. The GF2 framework has two main sets of programmes: a suite of Business Risk Management (BRM) programmes, which help farmers manage risk due to severe market volatility and disaster situations; and non-brm Strategic Initiatives, which provide indirect support to the sector through investments in research and innovation, food safety measures, and market promotion. 67. There are five BRM programmes, cost-shared between the federal and provincial governments: AgriStability (a whole-farm margin programme providing support in years of significant income declines); AgriInvest (a government-matched producer savings account for moderate income declines or for making investments in farming operations to mitigate risk); AgriInsurance (providing coverage for production losses due to natural perils); and AgriRecovery (the FPT co-ordinated disaster relief framework). These four programmes provide protection against different types of losses, as well as cash flow options. The fifth programme introduced in GF2, AgriRisk Initiatives, supports the industry to investigate risk, develop and implement new tools as well as to engage the support and participation of the private sector. 68. GF2 also introduces three new federal Strategic Initiatives: the AgriInnovation programme (which supports investments in developing and commercialising new products and technologies); the AgriMarketing programme (which supports investments to increase industry adoption of food safety and traceability systems, and investments to create and maintain access to new markets); and the AgriCompetitiveness programme (which supports investments in increasing profitability in domestic and global markets). These programmes support investment in industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives. 69. GF2 provides flexibility for provinces and territories to design and deliver programmes that respond to their regional priorities while supporting shared national outcomes. Provinces can also determine the level of resources to be expended in the respective programme area within the agreed limits stated in the FPT agreement. For instance, provinces must spend a minimum of 25% of their funding envelope on innovation programming. Outside of the GF2 FPT agreement, provinces are also able to provide programmes related to business risk management. The most significant of these are Ontario s Risk Management Program, and Quebec s Farm Income Stabilization Insurance. 70. Most farm-level environmental programmes are designed and administered by provincial governments. Two-programmes (cost-shared between federal and provincial governments) aim to advance environmentally sustainable agriculture: the Environmental Farm Plans (EFP) programmes and the 40

41 Environmental Stewardship Incentive programs. The EFP consists of an assessment of on-farm environmental risks, and the development of an action plan to mitigate those risks. The Environmental Stewardship Incentive Programs provide cost-shared financial assistance to farms with an EFP to adopt specific beneficial management practices, such as nutrient management, manure storage and soil erosion controls. 71. Canadian provinces are increasingly mandating nutrient management plans through regulatory changes, particularly to control excess nutrient runoff from livestock operations. A number of beneficial management practices are supported by federal-provincial agri-environmental programs, including buffer strips along water sources, nutrient management plans, and manure management. Municipalities may also have by-laws controlling nutrient loss into water sources, including regulations on the location of manure storages and minimum shoreline requirements or setback distances for lakeside residential and industrial development. Domestic policy developments in The main policy developments in include changes to the Advance Payments Program and several new initiatives under GF2 programmes. Further, the Canadian Food Inspection Agency has embarked on a change agenda designed to strengthen how it administers and enforces regulations within its jurisdiction that relate to food, animals and plants. Policy developments include changes to modernise regulations and the development of a policy on private certification schemes used by industry. 73. The Advance Payments Program (APP) is a federal loan guarantee programme that gives producers easier access to credit through cash advances. Following amendments to the Agricultural Marketing Programs Act in February 2015, legislative changes came into force that simplify access to cash advances under the APP. These changes: expand programme eligibility to include those not principally occupied in farming; allow producers to repay their cash advances without penalty if they decide to wait to market their commodities until prices are more favourable; expand the list of commodities which are eligible for cash advances; provide additional flexibility around allowable repayment methods; provide more options for producers to secure an advance payment, potentially increasing the amounts available under the programme; expand eligibility to include specific classes of breeding animals intended for market; and reduce administrative costs. 74. The AgriRisk Initiatives programme supports the private sector to expand its role in agricultural risk management and develop new industry-led risk management tools. It supports research and development as well as the pilot implementation of new risk management tools. Several AgriRisk Initiatives are underway in , primarily supporting research and development. Two new projects were announced in 2015 that could lead to new tools for producers. These projects aim to improve price transparency in wheat markets and price risk management for hogs. The Crop Data and Price Reporting project provides funding to the Alberta Wheat Commission to analyse gaps in crop data and price reporting for grains, and to develop a web solution that provides industry with timely, accurate and transparent market information. The Pork Industry Hedging Program Analysis project provides funding to the Canadian Pork Council to explore the feasibility of developing a hedging programme that would offer price stability and address the cash flow needs of Canadian hog producers. 75. In 2015, producers received CAD million (USD 7.95 million) in disaster relief payments under three AgriRecovery Initiatives. Following the discovery of avian influenza in British Columbia in December 2014, the Canada-British Columbia Avian Influenza Assistance Initiative provided CAD 6.75 million (USD 5.28 million) in disaster relief payments to affected producers, to assist with their recovery activities. The Canada-Manitoba Forage Shortfall and Transportation Assistance Initiative provided CAD 3.34 million (USD 2.62 million) in assistance to Manitoba livestock producers experiencing 41

42 extraordinary feed costs due to a forage shortfall caused by excess moisture conditions in The Canada-Nova Scotia Strawberry Assistance Initiative, which was implemented in 2014, provided a further CAD (USD ) in assistance to strawberry growers, to assist with extraordinary costs incurred to destroy and replant strawberry acreage infected with a virus. 76. Also under the GF2 policy framework, the Government of Canada continues to prioritize national livestock traceability implementation in collaboration with provinces, territories and industry. This initiative will improve Canada's capacity to track and manage disease outbreaks and regain market access. For example, under the GF2 AgriMarketing programme, the Government of Canada is providing funding to the Canadian National Goat Federation to help the goat industry prepare for mandatory national identification and traceability requirements. Amendments to the federal Health of Animals Regulations came into force on 1 July 2014 which introduced a mandatory national pig identification and movement reporting system. The same requirements applied to farmed wild boars on 1 July These new requirements are in addition to mandatory federal animal identification requirements for cattle, bison and sheep. In 2015, public consultations were carried out on federal regulatory amendments to enhance the current traceability system for bison, bovine, ovine and pigs, and to introduce a traceability system for goats and cervids (deer and elk). These regulatory enhancements are anticipated to come into effect in late Canada also continues to support livestock industry efforts to develop and rollout traceability implementation plans and enhance federal, provincial and territorial capacity to share traceability information. 77. The Canadian Food Inspection Agency (CFIA) is modernising its regulations. These changes are occurring as a result of the introduction of new laws, including: the Safe Food for Canadians Act 2012 (SFCA) and its regulations; and the Agricultural Growth Act 2015 (AGA), which amended all of the agricultural statutes that the CFIA administers. 78. The Government of Canada has developed a policy on the use of private certification schemes for food safety by industry, which will inform regulatory risk-based oversight by the CFIA. The Private Certification Policy (Food Safety) was approved and came into effect in September 2015, and implementation is taking place in phases. In determining the level of risk associated with a regulated party or their establishment, the CFIA may assess the requirements of a private certification scheme used by the regulated party against food safety regulatory requirements, and factor the assessment results into its riskbased planning and prioritization. This policy approach does not require new or revised regulations, and does not replace inspections, however, it allows the CFIA to target inspection activities at areas of highest risk. 79. On 30 July 2015, CWB (formerly the Canadian Wheat Board) was commercialized under the Canada Business Corporations Act, at which time it became a private entity named G3 Canada Limited. In 2011 the Marketing Freedom for Grain Farmers Act repealed the Canadian Wheat Board s monopoly powers to act as the single-seller in domestic and export markets for wheat and barley grown in Western Canada. The commercialisation of CWB was also mandated in the Act. Trade policy developments in Canada has 11 Free Trade Agreements (FTAs) in force with 15 countries. In 2015 Canada concluded negotiations towards the Trans-Pacific Partnership Agreement, creating a regional trading bloc with 11 other countries (Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Viet Nam). The agreement was signed on 4 February 2016 and is now undergoing ratification processes in each of the signatory countries. Also in 2015, Canada concluded negotiations towards an FTA with Ukraine; and the modernization of existing FTAs with Israel and Chile. Canada is engaged in ongoing FTA negotiations with several countries, including Japan, India, Morocco, 42

43 CARICOM (Caribbean Community), the Dominican Republic, Singapore, and Costa Rica (to modernise the Canada-Costa Rica FTA). Canada is also engaged in exploratory discussions with the Philippines, Turkey, Thailand and Mercosur. 81. In December 2008, Canada and Mexico requested consultations on the United States mandatory country of origin labelling (COOL) provisions in the Food, Conservation, and Energy Act 2008 (2008 Farm Bill). These measures contain an obligation to inform consumers at the retail level of the country of origin of covered commodities, including beef and pork. The US Department of Agriculture issued a new COOL regulation on 23 May A WTO Compliance Panel was established on 25 September 2013 to determine whether the new regulation brings COOL into conformity with the WTO obligations. On 20 October 2014, the WTO Compliance Panel found that the new COOL regulations discriminate against Canadian and Mexican exports of cattle and hogs. The United States appealed those findings, however, on 18 May 2015, the Appellate Body upheld the Compliance Panel ruling that the amended COOL measure continues to discriminate against Canadian and Mexican cattle and hogs. 82. In June 2015, Canada and Mexico requested authorisation to impose retaliatory duties on a wide variety of US exports. On 7 December 2015, a WTO-appointed Arbitrator ruled that the amounts of nullification or impairment caused by the COOL measure, and the maximum amounts to which Canada and Mexico can retaliate, are CAD million and USD 228 million, respectively, lower than the amounts originally requested. Final authorization to retaliate was granted by the WTO on 21 December On 18 December 2015, the US Congress passed legislation which contained a repeal of COOL for beef and pork. US President Obama signed that legislation into law also on 18 December The regulations implementing COOL were amended on 2 March 2016 to reflect the legislative change. Canada continues to monitor the situation closely to ensure that the discrimination against Canadian cattle and hogs is removed from the marketplace. 43

44 4. CHILE Support to agriculture 83. Chilean agricultural policy does not create significant distortions on agricultural markets. Domestic prices are aligned with international prices, resulting in a Nominal Protection Coefficient (NPC) of unity in the years Producer Support Estimate (PSE) accounted for an average of 3% of gross farm receipts in Measures at the farm level (i.e. input payments) are directed mainly to smallholders (more than 75% of total spending) through payments that improve farm capital (e.g. on-farm infrastructure, irrigation, soil quality) and on-farm services (e.g. farm training). Around 50% of government spending on agriculture is provided through general services to develop agriculture as a whole (e.g. hydrological infrastructure, sanitary and phytosanitary services and agricultural knowledge and innovation system). Market Price Support (MPS) is relatively small, accounting for only 3% of the PSE. Figure 2.4. Chile: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Producer Support Estimate General Services Support Estimate Panel B. Producer support estimate as % of gross farm receipts (%PSE), Million CLP PSE GSSE Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production % Chile OECD Other Million CLP 0 Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), Main policy changes 84. The fundamental orientation of agricultural policy remained unchanged; the policy objectives continue to emphasise agricultural competitiveness, with investments targeted to a number of areas, notably irrigation, and in maintaining Chile s strong sanitary and phyto-sanitary conditions, strengthening policy instruments that promote family farming and the development of rural economy. This is done through emphasising technological innovation, access to credit for smallholders, irrigation, and improving market information. Due to new challenges created by natural disasters, which have become more frequent over the past few years, some initiatives were taken in 2015 to better deal with risk and better manage water resources. Efforts were made through public-private partnerships to create more value added along 44

45 the food value chains, and to improve the functioning of markets. Training and skills for agricultural workers and farmers were also strengthened. Assessment and recommendations Chilean agricultural policy creates few market distortions and its PSE averages 3% of gross farm receipts in Total support to agriculture imposes a smaller burden on the economy than in most OECD countries, accounting for only 0.3% of GDP in General services account for 50% of total support to this sector, mainly directed at infrastructure, R&D and inspection services. NPC equals unity meaning that domestic prices are perfectly aligned with international prices. Chile has ensured that its agricultural policies remain well targeted to its principal objectives of facilitating smallholder development, i.e. 75% of direct payments go to smallholders to aim improving productivity and competiveness. Total budgetary allocations to the agricultural sector (i.e. payments to farmers and spending on general services) remained more or less constant between 2014 and Support payments comprise mostly support for farm inputs, rural and territorial development, the recovery of degraded soils, and on-farm irrigation. Most of the allocations on general services consist of spending on infrastructure (irrigation), inspection services, R&D, knowledge transfer and improving market information. While gradually increasing payments to farmers are targeted towards small-scale agriculture and indigenous farmers, careful attention should be paid to assessing their effectiveness. Impact assessments should be carried out systematically. As more projects and programmes to develop agriculture are being created across different ministries, there is a greater need for co-ordination. 45

46 Table 2.4. Chile: Estimates of support to agriculture 46

47 Contextual information 85. Chile has enjoyed an average growth of real GDP of around 4% for the period This growth has helped the country to become an upper middle income country with a GDP per capita of USD in 2014 and with a relatively low unemployment rate at 6.4% in 2015 (WDI, 2016). In 2014 agriculture contributed with 5.4% to GDP, but accounts for 9% of employment, reflecting the duality of its structure, where a semi-subsistence farm sector coexists alongside the large-scale commercial farm sector. Chile is a net exporter of agro-food products (excluding fish and forestry) with a surplus of USD 6 billion in 2015 and accounting for 16% of total exports in Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Chile International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.5% Population (million) % 0.5% Land area (thousand km 2 ) % 1.0% Agricultural area (AA) (thousand ha) % 0.6% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) Average of all countries analysed -100% 0% 100% 200% 300% Notes: * or latest available year.1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. doi: /agr-pcse-data-en * 47

48 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 86. The agricultural sector, in conjunction with related downstream activities, has played a key role in Chile s economic success, both benefiting from stability and reforms, and making an important contribution via rapid output and exports growth. Productivity growth has been central to Chile s agriculture. With a relatively stable use of primary and intermediate inputs into production, growth in output has been achieved by significant improvements in total factor productivity (TFP). TFP growth was above the OECD average at around 2.6% per year over the period from 2003 to Chile s agricultural and agro-industrial sector has been very successful in adding value to the production of primary commodities, and processed products such as wine and fruits. This is reflected in Chile s composition of agro-food trade, where 38% of exports are in processed products for final consumption. Figure Composition of agricultural output growth 3.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth Figure Composition of agro-food trade, Primary for consumption Processed for consumption Primary for industry Processed for industry Imports % 2.0% 1.5% 1.0% 2.6% 1.7% Exports % Source: UN Comtrade Database. 0.5% 0.0% -0.5% -0.2% -0.2% 0.4% 0.5% -1.0% Chile World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Table Productivity and environmental indicators TFP annual growth rate (% ) 1.71% 2.64% 1.58% 1.74% Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator Chile International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en World OECD average * 48

49 Development of support to agriculture 87. Chile continues to provide low levels of support to its agricultural sector. This is reflected by a PSE of 3%, one of the lowest in the OECD area, with almost no Market Price Support (MPS) and with a Nominal Protection Coefficient (NPC) of unity, meaning that domestic prices are aligned with international prices. Government spending on agriculture has been focused on boosting competitiveness and productivity with an emphasis on developing small-scale agriculture. PSE as % of receipts (%PSE) Support to farmers as measured by the %PSE declined from 8% in to 3% in Chile s PSE of 3% of gross farm receipts is amongst the lowest in the OECD area. Support has been characterised by direct payments to mostly small-scale farmers % 8% Potentially most distorting support as % of PSE Over time Chile has reduced its potentially most distorting support (based on output and variable input use without input constraints). For the period agricultural support has been linked to fixed capital formation input use % 85% Ratio of producer price to border price Producer Nominal Protection Coefficient Producer prices are aligned with world prices, reflecting almost no distortions in output markets TSE as % of GDP Total agricultural spending has been rising since 1990; however its burden on the economy has always been small and has declined over time. The share of outlays on general services GSSE represents 50% of TSE % 0.6% Decomposition of change in PSE, 2014 to % Price Gap +0.1% Transfer to specific commodities (SCT), MPS Payments based on output Other SCT +10.0% MPS Sugar PSE Quantity +0.5% +9.4% BUDGETARY PAYMENTS Milk The level of support increased in 2015, mainly due to increased budgetary transfers. -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The only transfers to specific commodities went to sugar and represented 3.4% of commodity gross farm receipts. 49

50 Description of policy developments Main policy instruments 88. Agricultural policies in Chile emphasise the development of small-scale agriculture, the improvement of agricultural productivity and competitiveness and the conservation of natural resources. Chilean agricultural policy does not create important distortions on agricultural markets. Agricultural support to farmers or PSE was 3.3% in About half of the Total Support Estimate (TSE) to the sector is provided through general services (GSSE), notably infrastructure, land restructuring, Research and Development and inspection services. The other half is provided as payments to farmers, mostly through different types of input subsidies and in particular on fixed capital formation and on on-farm services. 89. The fundamental orientation of agricultural policy remained unchanged. The policy objectives continue to emphasise agricultural competitiveness, with policy support targeted notably to irrigation and to maintaining Chile s strong sanitary and phyto-sanitary conditions. The government continues to strengthen policy instruments that promote family farming and the development of the rural economy. This is done through emphasising technological innovation, technology transfer for small-sized farms, access to credit for smallholders, irrigation, and improving market information. Institutional modernisation has also been a priority, particularly in the light of new challenges created by natural disasters which have become more frequent over the past few years. Some initiatives to better deal with risk and better manage water resources were taken in Efforts were made in public-private partnerships to create more value added along the food value chains, and to improve the functioning of markets. Training and skills on agriculture were also strengthened. 90. Chile applies a uniform MNF tariff of 6%, however given its various bilateral trade agreements, the average applied tariff for imported products is less than 1%. An open trade regime has helped Chile to develop as an important world producer and exporter of agricultural and food products like fruits, vegetables, dairy products, poultry, pork meet and wine. Domestic policy developments in Around 50% of total support to the sector is given through general services or GSSE, equivalent to approximately USD 398 million in 2015, the other half of support is provided through payments to farmers. The Producer Support Estimate (PSE) was 3.3% of gross farm receipts in 2015, mostly through different kinds of input subsidies predominantly directed to small-scale agriculture (more than 75%). The budgetary allocation increased by 10% from CLP 466 billion in 2014 to CLP 514 billion (USD 786 million) in A quarter of total support (around USD 203 million) went to improving farm productivity and competitiveness. Most programmes in this category (80%) are designed to support small-scale agriculture. This support includes subsidies for variable input use, fixed capital formation and on-farm services. 93. Another important category of payments to farmers goes to irrigation investments, these accounted for 20% of total budgetary support to the sector (USD 150 million). Irrigation has both on-farm and off-farm components. On-farm support provides subsidies to farmers to improve or install a new irrigation system. On-farm subsidies represented 32% of spending in 2015, whereas 68% is used for community, regional or national investments. Irrigation policies continue to support family farms. In 2015, the National Irrigation Commission (CNR) reorganised its work to provide specific support to small-scale farmers and indigenous people. It also coordinated efforts with the National Institute of Agricultural Development (INDAP), the government agency that provides subsidised credit to smallholders, to finance 50

51 some on-farm irrigation works. These irrigation projects (CNR and INDAP) totalled around USD 90 million of which 85% went to small-scale agriculture. 94. Development programmes under the Indigenous Development Commission (CONADI) that aim to reach indigenous population and provide support for land restructuring and for fixed capital formation, accounted 15% of budgetary expenditures in support of agriculture in The agricultural knowledge and innovation system accounted in 2015 for 11% of government expenditures on agriculture, USD 83.6 million. Inspection and control services, particularly sanitary and phytosanitary protection services and food safety, accounted for 10% of all government spending while soil recovery programme accounted for 6%. This programme aims to improve degraded soils used in agriculture. 96. Loans at preferential interest rates through INDAP reached a new high of USD million in 2015 (an increase of 17% from 2014) and benefited about fifty thousand farmers. The subsidy element in INDAP s direct lending is relatively small, around 3% difference between the market and the INDAP interest rates, equivalent to 5% of total support to farmers. Subsidies to crop insurance (co-payment of premiums) accounted for 1% of total support. 97. In 2015, INDAP created a programme to better link smallholders to markets. The programme tries to promote the formation and consolidation of short marketing circuits in agriculture. This initiative has four lines of action: 1) promotion and visibility with creation of a seal Manos Campesinas ; 2) development of business options with the improvement of business alternatives for family farming including its inclusion to government procurement; 3) development of business capabilities with the creation of two new training services the commercial manager and the economic partnership programme ; and 4) knowledge generation, with the provision of five studies that covered different commercial dimensions and three support manuals on commercialisation. 98. At the beginning of 2015 several droughts affected the country, this situation led to declaring a state of emergency in 8 of the 15 regions of the country. These droughts also contributed to wildfires that burnt hectares of native forest. In April 2015, the Calbuco volcano erupted and damaged parts of the best agricultural land of the country. Towards the second half of the year, the country also had some floods and the El Niño phenomenon started to be heavily felt with an increase in precipitation across the country. These extreme events prompted to declare a state of emergency in 108 municipalities and around USD 70 million was spent as a response to natural disasters. This support was mostly spent on improvements in on-farm irrigation systems, fixed capital formation, soil recovery investments at the farm level and insurance. 99. Some institutional changes took place in 2015, with the objective to better manage natural disasters, the Ministry of agriculture created the Division of Integrated Risk Management. This Division aims to manage holistically risks and providing more efficient responses to natural disasters and agricultural emergencies. Given concerns about the increasing demand of water, the government launched the National Policy on Water Resources This policy established four principles: 1) the State as a responsible and participatory agent; 2) measures to address water deficit; 3) regulatory framework for water resources; and 4) strengthening of social organisations. The policy is oriented to redefine the role of the state, to reform regulations and institutions in order to decentralise water management and give more autonomy to regional governments. This territorial management is expected to lead to better distribution and availability of water resources During 2015, the Ministry of Agriculture continued promoting a sustainable agriculture and some measures took place, related mostly to knowledge generation and transfer. For instance, the Office of 51

52 Agricultural Studies and Policies from the Ministry of Agriculture (ODEPA), together with the National Institute of Agricultural Development (INDAP) signed an agreement of cooperation for the development of a Sustainable Agricultural Plan with the Development Cooperation Institute (CORFO) and the Clean Production Council (CPL) of the Ministry of Economy. This Plan aims to improve competitiveness through the incorporation of sustainable and clean production practices. Several other agencies have also created initiatives on sustainability such as ODEPA s Sustainable Agriculture Protocol, INDAP s Sustainable Agriculture Programme for Smallholders, Agricultural National Research Institute (INIA) and its National Programme on Sustainable Agriculture and Environment, and the Agriculture Innovation Foundation (FIA) with its incentives to promote innovation on agriculture The public-private partnerships programme was strengthened in order to create more value added along the food value chain. For instance, the work of the National Sub-sector Commissions involved more intensive dialogue and coordination between public and private stakeholders, the monitoring of suppliers and consumers of some agricultural products, as well as identifying and proposing solutions to factors that affect the well-functioning of the supply chain. The sub-sector Commissions were: wheat, beekeeping, beef, organic farming, nuts and dehydrated vegetables, corn, wine and rice. Furthermore, substantial efforts took place for a deeper coordination between the public and private sectors to make the already available policy instruments to better cover the needs of the stakeholders along the agri-food chains represented by these Commissions During 2015, several initiatives tried to strengthen agricultural skills and training. For instance, the National Service for Training and Employment (SENCE) increased the number of courses for agricultural workers and farmers, for more than applicants. In addition, ChileValora (National Skills Certification System) coordinated eleven Sectorial Skill Organisations (OSCLs) related to fruit, wine, vegetables, dairy, seed production, olive oil, honey, poultry, pork, red meat, processed food and family farming. Trade policy developments in Chile has a wide network of preferential trade agreements which allows an almost tariff-free trade among its partners. In 2015, 94% of the total exports were destined to the 64 markets covered by the 25 preferential trade agreements the country has. Chile s applied MNF tariffs continue to be at 6%, however the average applied tariffs have been below 1% In 2014, Chilean exports benefited from an estimated applied tariff of 0.32% on its foreign markets under Preferential Trade Agreements. The estimated average tariff on agricultural exports on foreign markets was 1.3% Chile promotes agro-food exports through two mechanisms: Pro-Chile (an export promotion agency with 55 offices in the world) and the Agricultural Attachés (with 12 offices all over the world) In 2015, the Free Trade Agreement (FTA) with Thailand entered into force. In early 2016, Chile concluded the negotiations with India to broaden the coverage of the current Partial Scope Agreement. Other negotiations being conducted include the Pacific Alliance and the FTA with Indonesia. In February 2016, the Chilean government signed the Trans-Pacific Partnership Agreement (TPP) with eleven other members (Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Viet Nam). The agreement is expected to improve market access in the TPP region for a large range of products. References MINAGRI (2016). OECD Annual Country Report of Chile. Government Report. Santiago,

53 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 5. CHINA Support to agriculture 107. In the People s Republic of China (hereafter China ) support to agricultural producers continues to grow and at 20% of gross farm receipts in exceeded the OECD average. In 2015, the government kept minimum prices for rice and wheat at the 2014 level and expanded a range of commodities covered by reforms replacing government purchases at intervention prices by a system that compensates the difference between target prices and actual market prices. However, a continued fall of international prices drove market price support (MPS) to a new record high. The total support estimate (TSE) was 3.1% of GDP in recent years. While payments based on area planted tend to increase, the MPS remain the dominant part of the total support. Within the General Services Support Estimate (GSSE), three categories attract the largest financial support: development and maintenance of infrastructure, public stockholding and agricultural knowledge and innovation system The level of price distortions is high with domestic prices on average 23% above world prices. With the exception of eggs and poultry, producers are benefiting from high transfers accounting in most cases for between 20% and 40% of receipts. Following the discontinuation of intervention prices for cotton, in 2015 domestic cotton prices fell almost to the world levels and the fall has been covered by compensatory payments accounting for a growing share of cotton producers receipts. Figure 2.5. China: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Panel B. Producer Support Estimate as % of gross farm receipts (%PSE), Producer Support Estimate Billion CNY General Services Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other % China OECD Billion CNY Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), 53

54 Main policy changes 109. In 2015, China undertook a number of policy measures to keep a growing positive gap between domestic and international prices under control. These measures included: keeping minimum prices for wheat and rice at the 2014 levels; a 10% reduction of the floor price for maize; continued application of target prices for cotton and soybeans combined with compensatory payments; discontinuation of floor prices for rapeseeds; and lowering of the floor price for sugar cane. China also started the process of combining three area payments (direct payments for grain producers, comprehensive subsidy on agricultural inputs and seed variety subsidy) into a single payment called agricultural support and protection subsidy. Most of the funds for this new payment will go to traditional small-scale farmers who are expected to use the funds for land fertility improvements; a small portion of the funds will be used to support larger-scale new-style farmers. Assessment and recommendations Recent reforms to replace intervention prices by target prices combined with compensatory payments based partly on area planted could be extended to include maize, rice and wheat. In the future, the link between compensatory payments and production decisions should be further removed by providing them on a historical area basis, for example, and greened by making them conditional on environmentally friendly cultivation practices. As land and water are very scarce in China and environmental pollution caused by farming has become an alarming issue, any further increase in agricultural production should only be achieved through sustainable improvement of productivity. In this respect, existing agricultural policy instruments should be reviewed to improve their coherence with agro-environmental policy objectives. In particular, water price reform could be accelerated to cover water provision costs, in order to enhance more efficient water use. To address the issue of rural poverty, access of the rural poor to education, healthcare and physical infrastructure should be further improved. For the elderly, the government should as envisaged quickly take full responsibility for rural pensions and also gradually increase their level. To reduce potential volatility of food supplies on domestic markets, China should further diversify sources of food through stronger integration of domestic and international agro-food markets. To ease the re-allocation of land to more efficient farmers, recent land market reforms strengthening rural land-use rights should be further reinforced. This can be achieved by: providing all rural households with certificates detailing their land rights; establishing transparent exchange platforms for the transfer of rights for rural farmland and construction land; and universally introducing resident permits for migrant workers that provide access to public services, while protecting their land entitlements. 54

55 Table 2.5. China: Estimates of support to agriculture 55

56 Contextual information 110. China ranks first in worldwide farm production, producing in value terms as much as the combined total value of all OECD member countries. Agriculture remains a key sector accounting for 31% of total employment and contributing almost 10% of China s GDP in Even if rural incomes are growing at high rates, they remain at around one-third of those in urban areas. China has become a large net importer of agro-food products, in particular of soybeans, cotton, edible oils and sugar. Around 60% of agro-food imports are primary products destined for industry processing. Crop production is based on tiny family farms of less than one hectare on average, but large-scale production has been quickly developing, in particular in north-eastern provinces. Livestock production originates mostly from large-scale commercial units. Figure Main economic indicators, Figure Agro-food trade, % 20 Real GDP growth Unemployment rate Inflation rate Billion USD 140 Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators China International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 23% Population (million) % 40% Land area (thousand km 2 ) % 12% Agricultural area (AA) (thousand ha) % 19% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Average of all countries analysed Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. doi: /agr-pcse-data-en 526% * 56

57 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 111. Agricultural output growth in China averaged 3.6% in , almost one-third above the world s average. It has been driven by an impressive increase in total factor productivity at 3.2% per year, almost twice the world s average. However, such a rapid growth exerts mounting pressures on natural resources. While feeding almost 20% of the world s population, China has only 7% of the world s potable water and 10% of the world s agricultural land. Agriculture remains the key user of water, accounting for 61% of total water consumption. Gross water abstractions as percentage of renewable water resources are twice higher than the OECD average. Figure Composition of agricultural output growth Figure Composition of agro-food trade, % 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.2% 0.4% 0.5% -0.1% China 1.7% 0.4% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators China Imports Exports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD China Energy consumption n.a GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 3.99% 3.20% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison % Deviation from OECD average 1-100% 0% 100% 200% 300% * 57

58 Development of support to agriculture 112. China has been increasing its support to agriculture through increasing transfers from consumers and taxpayers, but in recent years growth in transfers from consumers dominates. The share of the most production and trade distorting forms of support is high at around 80% and the economic cost of support, as measured by TSE as % of GDP, has stabilised at around 3.1%, one of the highest rates across all countries. PSE as % of receipts (%PSE) Support to farmers as measured by the %PSE has increased from 3% in to 20% in and is now above the OECD average % % Potentially most distorting support as % of PSE The share of potentially most distorting support (based on output and variable input use without input constraints) is high at 81% of the total not calculated % Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers were on average 23% higher than world prices in TSE as % of GDP Total support to agriculture has stabilised at around 3.1% of GDP in recent years, but remained almost three times higher than in The share of expenditures on general services (GSSE) in total support (TSE) has declined from 59% in to 11% in % 3.1% % PSE Decomposition of change in PSE, 2014 to % MPS -0.02% BUDGETARY PAYMENTS Price Gap Quantity +14.0% -0.2% The level of support increased in 2015, mostly due to a slow adjustment of domestic prices to falling world prices leading to the significantly larger price gap between domestic and border prices (MPS). Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Maize Rice Soybeans Rapeseed Sugar Milk Beef and veal Pig meat Poultry Sheep meat Eggs Cotton -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Single commodity transfers (STC) constituted 80% of the PSE in The share of the STC in commodity receipts is lowest for eggs and poultry and highest for sugar, rapeseeds and rice. 58

59 Policy developments Main policy instruments 113. A key driver behind agricultural policy measures employed in China remains the objective to maintain 95% self-sufficiency for key grains. However, the scope of grains covered evolves. While wheat and rice are still covered, a number of policy decisions and announcements in early 2016 indicate that maize will be removed Market price support is the main channel for providing support to Chinese farmers. It is provided through tariffs, tariff rate quotas (TRQ) and state trading, combined with minimum guaranteed prices for rice and wheat and ad hoc interventions on other agricultural commodity markets Minimum prices for grains are set every year by the National Development and Reform Commission (NDRC) in consultation with the Ministry of Agriculture and other government institutions. Designed to help meet the demand in grain-deficit provinces, their application is limited geographically to major grain-producing provinces. They differ for each type of grain and only apply for a fixed period limited to several months after the harvest The state-owned China Grain Reserves Corporation (Sinograin) is obliged to make intervention purchases if the market price dips below the established support level. During the periods of price hikes and to maintain sufficient market supplies, the government holds weekly auctions of grains Several other agricultural commodities are subject to government-led ad hoc interventions at pre-determined prices, mostly intended to stabilise market prices and to ensure adequate supplies. Such interventions covered maize, cane sugar, soybeans, rapeseed, cotton and pork, but in they were discontinued for cotton, soybeans and rapeseeds and replaced by compensations covering the difference between pre-determined target prices and actual market prices Budgetary transfers to producers have grown consistently since the end of the 1990s. Most of them are provided through four basic programmes: direct payments for grain producers; payments to compensate farmers for an increase in prices of agricultural inputs; subsidies for improved seeds; and subsidies for purchases of agricultural machinery. Direct payments for grain producers and almost all subsidies for chemicals and seeds are paid at a flat rate per unit of land. Subsidised agricultural insurance schemes have grown in importance in recent years. Payments for returning farmland to forests and for exclusion of degraded grassland from grazing reflect environmental concerns Within general services, a wide variety of programmes supporting development of agricultural infrastructure, including irrigation and drainage facilities, is the most important category, followed by public stockholding of grains Since the reform of the fiscal system in 1994, sub-national governments have been required to co-finance policy-related costs from their own budgets. As financial capacity of sub-national governments differs strongly across China, sub-national governments have considerable control over how policy is actually implemented within their jurisdiction A red line on arable land at no less than 120 million ha has been set and the conversion of farmland for non-agricultural use is strictly controlled. About 40% of land suffers from various forms of degradation. 59

60 Domestic policy developments in Since the food crisis in up to 2014, the minimum prices for rice and wheat were increased each year. Due to the ongoing appreciation of the Chinese Yuan, USD equivalents of minimum prices and of floor prices of selected other commodities covered by ad hoc interventions rose even faster. As commodity prices on international markets started to fall after 2011, the positive price gap between domestic and international prices widened, stocks of various commodities (grains and cotton in particular) escalated and agro-food imports increased. In this context, in and early 2016 the Chinese government undertook several initiatives to revert this trend: Minimum prices for wheat and rice in 2015 were kept at the 2014 levels. For 2016, prices for wheat, middle and late indica rice and for Japonica rice are to remain at the levels, but for early indica rice the price will be lowered by 1.5% to CNY 2660 (USD 428) per tonne. The floor price for maize from the 2015 crop for state temporary reserves was lowered by CNY 260 (USD 41) to CNY (USD 317) per tonne. This was the first decline in the floor price for maize since 2007 when this system was introduced. Further reforms of the maize purchasing and storage system were announced in late March Maize prices are to be allowed to be set by market forces and maize producers would receive subsidies to stabilise revenues. The reform would be implemented in key maize producing areas: in Heilongjiang, Jilin, Liaoning and Inner Mongolia. However, the modalities of the new system and the timeline of its implementation remain unknown as of early April The stock holding programme for cotton was abandoned in and switched to a trial subsidy programme based on a target price system. The new system was applied in Xinjiang province, the key cotton production area in China. In it was based on compensations to cotton farmers if the market price falls below a target price of CNY (USD 3 193) per tonne. Compensation was based on a combination of the cotton area and the volume sold to cotton grinners. In the nine cotton-producing provinces outside Xinjiang cotton farmers received a direct subsidy of CNY (USD 323) per tonne in 2014/15 (GAIN-CH14055, 2014). For the 2015/16 marketing year, the target price was diminished to CNY (USD 3193) per tonne and the payment mechanism modified with 90% of funds allocated to producers on the basis of certified production sold and 10% allocated to the southern part of Xinjiang and to be paid on the basis of certified planted area. For provinces outside Xinjiang, the system remained largely unchanged. Similar to cotton, a pilot target price programme with a direct subsidy for soybean producers was introduced in the 2014/15 season in four northeast provinces of Heilongjiang, Jilin, Liaoning and Inner Mongolia. It is based on the difference between the government target price and the market price as registered in autumn The target price was set at CNY (USD 773) per tonne, it means CNY 200/tonne higher than the average price in the previous season. The subsidy was paid on per unit of land basis (GAIN-CH15018, 2015). For the 2015/16 season, the level of the target price in the four provinces remained unchanged. The system of floor purchase prices for rapeseed for the 2015/16 season was discontinued and only partly replaced by very limited direct subsidy to farmers. According to China National Grain and Oils Information Center, the subsidy varies by province with e.g. Jiangsu and Hubei provinces paying CNY 450 (USD 75) per ha (GAIN-CH15035, 2015). The floor price for sugar cane was lowered to CNY 400 (USD 63.7) in marketing year 2014/15 from CNY 475 (USD 75.6) two years prior (GAIN-CH15015, 2015). 60

61 123. The above measures helped stabilise domestic prices for some commodities (wheat and rice) or contributed to falls for some other (maize, rapeseeds, soybeans, cotton and sugar), but as international prices fell even more, the price gaps continued to increase, with the exception of cotton for which the price gap declined quite strongly. As a result, the value of overall market price support reached the highest level since 1993, when the OECD started to apply the PSE methodology for China The amounts of crops purchased by state-owned companies at minimum or intervention prices change from one year to the next, depending on the relative levels of market prices and those offered by the government. In 2015, the government purchased a record amount of 175 million tonnes of grains, out of which just 18.5 million tonnes had been auctioned (Renmin Daily, 2016) due to high prices and inconsistent quality (GAIN-CH15058, 2015). To enhance sales, various provinces offered subsidies for processors purchasing grains from state reserves. In the case of maize they ranged from CNY (USD 24-40) per tonne (GAIN-16002, 2016). In addition, local governments were also offering tax credits or loans to some processors (GAIN-CH15058, 2015). Moreover, in 2015 China changed the allocation of tariff-rate quotas (TRQs) obliging private importers to purchase grains from state reserves to be eligible for imports within grain quotas allocated to the private sector (see below; GAIN-CH15012, 2015). Despite these efforts sales from state reserves remained low, thus leading to even higher grain reserves estimated at 249 million tonnes by the end of the marketing year 2015/16 (GAIN-16002, 2016) In 2015, the government applied a pilot programme to combine Three subsidies (direct payments for grain producers, comprehensive subsidy on agricultural inputs and improved seed variety subsidy), all paid on per unit of land basis, into a single payment in five provinces including Anhui, Hunan, Shandong, Sichuan and Zhejiang. The new programme, called agricultural support and protection subsidy consists of two components. Four-fifths of the value of three subsidies was paid per unit of land directly to owners of land use rights. This part is intended to protect arable land fertility and to preserve grain production capacity. One-fifth of budgetary allocations was set aside for new-style farms who rent in land from neighbours, family farms, cooperative farms, and farms run by agribusiness companies (MOA-MOF, 2015). Funding for these farms will be supplemented by other earlier existing funds such as fund for large grain farmer subsidies. In line with the policy guidance of the Number One Document 2016 the new programme is to be applied nationally in Preliminary data suggest that the total budgetary allocation for the Three subsidies, both in pilot and other provinces, increased from CNY billion (USD 22.5 billion) in 2014 to billion (USD 22.8 billion) in It remains by far the most important budgetary support programme for Chinese agriculture The subsidy for the purchase of agricultural machinery remained unchanged at CNY 22.8 billion (USD 3.6 billion) in The programme compensates the cost of purchases by reimbursing the purchaser or compensating the seller for 30% of the purchase price. In 2015 the subsidy covered machines in 11 categories and 43 sub-categories at the maximum level varying from CNY 50 thousand (USD 8.0 thousand) up to CNY 60 million (USD 9.5 million) per single piece, depending on the type of machinery. The highest subsidy is allocated for the purchase of large cottonpicking machinery (MoA, 2015a). In 2016, the categories of eligible machinery are to be revised and the maximum subsidy level diminished by 10% (Farmer, 2016) Subsidies for agricultural insurance schemes at CNY 22.7 billion (USD 3.6 billion) in 2015 remained one of the key support programmes for agriculture. The central government subsidises insurance premium for 15 products, including all major crop and livestock commodities, at the rate of 40% of the premium in central and western provinces and 35% in the eastern provinces. Provincial and county governments provide additional subsidies, but as from 2016 the share covered by the central government subsidy is to increase to 47.5% for the central and western provinces and to 42.5% for the eastern provinces (MOF, 2016). 61

62 128. Under the grain for green project (officially called the Returning Farmland to Forests Programme ) cultivated lands in environmentally fragile areas are retired from crop production (mainly grains), and converted to pasture or forest. As from 2016, the implementation of this programme is to be accelerated. The subsidy for converting farmland to forest is to be provided at CNY /ha (USD 3 575/ha) and for converting farmland to grassland at CNY (USD 2 383) (MOF, 2015) To reduce the use of chemical fertilisers and pesticides, China initiated the 2020 Zero- Growth Action Plan for Chemical Fertilizers and Pesticides (MoA, 2015b). The goal of the plan is to reduce the annual growth of chemical fertiliser use to below 1% for the period and to achieve zero-growth by 2020 for major agricultural crops. For pesticides the plan envisages a reduction in average use per unit of land to achieve zero-growth of their total use by In January 2015, China s Environment Protection Act went into effect. The Act contains provisions for increased financial penalties for livestock breeders that mismanage waste. Local authorities are using tougher environmental rules to close down or relocate pig farms, in particular those located close to densely populated areas. It is reported that more than half of small farms in Guangdong province were shut down while the remaining farms were requested to reduce their herds. Similarly, in Fujian province, local authorities closed more than backyard farms over pollution worries (GAIN-CH15034, 2015) In late January 2016, the State Council announced that China plans to establish a new agricultural water price mechanism within 10 years. Water prices are to cover the cost of operation and maintenance. In addition, a system of targeted subsidies and water-saving rewards is to be implemented and advanced water-saving technologies promoted. Regions benefiting from favourable water engineering facilities are urged to implement the new system within a period of 3-5 years (State Council, 2016). Trade policy developments in China s TRQs for grains and proportions set for private industry and public entities remained unchanged in However, the NDRC made the allocation of quotas to private traders dependent on purchases from government grain reserves. Enterprises from seven major grain consumption regions (Beijing, Shanghai, Tianjin, Zhejiang, Fujian, Guangdong and Hainan) and four ethanol producers (located in Jilin, Heilongjiang, Henan and Anhui) were eligible to apply for amounts 20% higher than the amounts they had purchased at auctions organised by the state reserves. Other enterprises could apply for the amounts equal to those purchased at these auctions. Applications from those who did participate in the auctions were not accepted (GAIN-CH15014, 2015). As in preceding years, while fill rates for private sector TRQs were relatively high in 2015, fill rates for the public entities remained low Faced with high domestic maize prices and limited access to maize imports regulated by TRQ, feed mills opted to instead import alternative feed grains such as sorghum, barley and Distillers Dried Grains with Solubles (DDGS). However, the government added sorghum, barley, tapioca and DDGSI to its Automatic Import Licence (AIL) Catalogue effective 1 September All previous importers had to renew their licences and for the new ones the process became more complicated and time consuming (GAIN-CH15058, 2015). Moreover, in January 2016, following a petition filed by the China Alcoholic Drinks Association, the Ministry of Commerce (MOFCOM) announced the initiation of an anti-dumping investigation into imports of DDGSI originating from the United States (MOFCOM, 2016) In contrast to previous years, in 2015 the NDRC did not issue additional TRQs (subject to a sliding duty) for cotton imports. Taking into account that domestic prices fell to the levels just above those on international markets, imports at the above-quota duty of 40% was not profitable. In turn, sugar imports greatly exceeded the 1.95 million tonne annual TRQ as high domestic sugar prices made sugar imports competitive even with out-of-quota tariff rate of 50% (GAIN-CHI15015). 62

63 135. In January 2015, China banned poultry imports from the United States due to outbreaks of high pathogenic avian influenza (HPAI). On the same basis, poultry imports from France were banned in early December 2015 (GAIN-16001, 2016) On 1 October 2015, a revised Food Safety Law came into effect. Among many regulations, rules and measures already issued and still to be delivered to implement the provisions of the Law, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) issued administrative measures requesting food importers to conduct on-site inspections of overseas food manufactures (GAIN- CH15077, 2015) On 20 December 2015, the China-Australia FTA, ChAFTA, entered into force, followed by two immediate tariff reductions, first on 20 December and second on 1 January ChAFTA will provide significant agro-food export opportunities for Australia, in particular of such products as beef, dairy, sheep and goat meat, wool, pork, hides, skins and leather, wine and spirits, horticulture, barley and sorghum, seafood, processed foods and live animals. For these commodities, tariffs will be eliminated or significantly reduced, with reductions being phased in within defined periods. As is the case with all of its FTAs, China has not provided further liberalisation on rice, wheat, cotton or sugar, all of which are considered significantly sensitive. In line with all of Australia s FTAs, Australia will eliminate remaining tariffs on agricultural and processed imports from China. The elimination of some of these tariffs, in particular on a range of canned fruit products and peanuts, will be phased in by 1 January The agreement provides a base for further liberalisation as both parties are committed to review results three years after entry into force (DFAT, 2017) Also on 20 December 2015, China-Korea FTA took effect. China is committed to eliminate tariffs on 91% of agricultural products within 20 years. The remaining 9% is excluded from liberalisation or subject to only partial liberalisation. Almost two-thirds of agricultural imports from Korea will be able to enter the Chinese market duty-free in 10 years. Duty-free entrance for processed products will be possible within 20 years. Korea s liberalisation is more modest. Korea agreed to remove tariffs on 64% of agricultural products within 20 years, but excluded the remaining 36%, defined as highly sensitive products (Schott et al., 2015). 63

64 References DFAT (Australian Government Department of Foreign Affairs and Trade) (2016), China-Australia Free Trade Agreement. Factsheet: Agriculture and Processed Food, viewed 3 March Farmer (2016), 2016 adjustment of agricultural machinery subsidy and cuts of subsidy limits, 4 February viewed 2 March 2016 (in Chinese). GAIN-CH14055 (2014), China - Peoples Republic of: Cotton and Products, Update, USDA FAS, 28 November. GAIN-CH15012 (2015), China - Peoples Republic of: Translation NDRC Grain Import TRQ Training, USDA FAS, 27 April. GAIN-CH15014 (2015), China Peoples Republic of: Grain and Feed Annual; China Grain and Feed Annual, USDA FAS, 8 May. GAIN-CH15015 (2015), China Peoples Republic of: Sugar Annual; China Sugar Annual, USDA FAS, 18 May. GAIN-CH15018 (2015), China Peoples Republic of: Oilseeds and Products Update. MY 15/16 China s Oilseed Production down while Imports Rise, USDA FAS, 28 May. GAIN-CH15034 (2015), China Peoples Republic of: Livestock and Products Annual. China s Increasing Appetite for Imported Beef, USDA FAS, 23 September. GAIN-CH15035 (2015), China Peoples Republic of: Oilseeds and Products Update. MY 15/16 China Soybean Imports to Hit 78 million tons, USDA FAS, 28 September. GAIN-CH15058 (2015), China Peoples Republic of: Grain and Feed Update. Government Cut to Corn Prices Reshapes Feed Market, USDA FAS, 6 November. GAIN-CH15077 (2015), China Peoples Republic of: Food and Agricultural Import Regulations and Standards. FAIRS Export Certificate Report, USDA FAS, 31 December. GAIN-CH16001 (2016), China Peoples Republic of: Poultry and Products Semi-annual. Poultry Demand Remains Flat, USDA FAS, 2 February. GAIN-CH16002 (2016), China Peoples Republic of: Grain and Feed Update. Huge Stocks Challenge Grain Policy, USDA FAS, 5 February. MOA (Ministry of Agriculture) (2015a), Guidance to implement the subsidy for the purchase of agricultural machinery , viewed 2 March 2016, (in Chinese). MOA (2015b), 2020 Chemical fertilizer use and pesticide use: zero-growth action plans, viewed 1 March 2016 (in Chinese). MOA-MOF (2015), Guidance to adjust and improve agricultural three subsidies, viewed 2 March (in Chinese). MOF (Ministry of Finance) (2016), The central government to increase agricultural insurance support for major grain-producing counties, viewed 15 March (in Chinese). MOF (2015), Notice on the expansion of a new round of reforestation, viewed 3 March 2016 (in Chinese). MOFCOM (Ministry of Commerce) (2016), Announcement No. 2 of 2016 on Initiating an Anti-dumping Investigation into Imports of Distiller's Dried Grains with or without Solubles Originating from the U.S., 64

65 Renmin Daily (2016), China Grain Reserves Corporation purchased 175 million tonnes of policy grains in 2015, viewed 2 March 2016 (in Chinese). Schott J.J., E. Jung and C. Cimino-Isaacs (2015), An Assessment of the Korea-China Free Trade Agreement, Policy Brief, No PB15-24, December. State Council (2016), State Council seeks to adjust agricultural water price, viewed 8 March

66 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 6. COLOMBIA Support to agriculture 139. Colombia s level of support to producers (%PSE) averaged 17% of gross farm receipts over the period , approximately at the same level as the OECD average. Market price support (MPS) is the main component of the PSE accounting for around two-thirds of the total support provided over the period MPS is mostly determined by the use of border measures for several agricultural products like maize, rice, poultry, milk, sugar, and pig meat. Budgetary transfers accounted for 22% of the PSE during and have been dominated by payments based on variable input use. Budgetary payments to general services to support the sector as a whole, or GSSE have been relatively small, accounting on average for only 16% of the total support estimate (TSE). Expenditures on these items include: agricultural research and transfer, infrastructure particularly in irrigation and farm restructuring. Figure 2.6. Colombia: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Panel B. Producer Support Estimate as % of gross farm receipts (%PSE), Billion COP Producer Support Estimate General Services Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Billion COP Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Colombia OECD Main policy changes 140. A new policy framework, Colombia Siembra, was created in 2015 and aims to raise agricultural production through an increase in the planted area and yields of several crops. It plans to create a zooning programme, a risk management programme and a range of financial instruments for producers, as well as to improve extension and technical assistance services. Several institutional reforms took place in For instance, the INCODER, the institution in charge of rural development and land issues, was dismantled and its functions will be implemented by several newly created agencies as of end Three main agencies were created in its place: the National Land Agency (Agencia Nacional de Tierras, ANT); the Rural Development Agency (Agencia de Desar rollo Rural, ADR); and the Renovation of Territory 66

67 Agency (Agencia de Renovación de Territorio, ART). A new important programme was created in 2015 to deliver budgetary support to agriculture: 75% of the programme is delivering general services such as irrigation, marketing and promotion and extension services. The remainder of transfers is given through a range of different input subsidies to farmers. In 2015 the Colombian government implemented a series of trade policy measures. All tariffs for fertilisers and pesticides imports were dismantled. Tariffs for beans, lentils, and garlic were set to 0% (until June 2016) as well as for palm oil (until August 2016). Tariffs for sugar were set to a maximum of 70% from a 117% in previous years. Assessment and recommendations The agricultural sector in Colombia faces a wide series of structural and institutional challenges that hinder competitiveness. Underinvestment in public goods and services, poor land management, unsuccessful land tenure reforms (more than 40% of land ownership continues to be informal) and a long-running internal conflict closely, have deeply affected the performance of the Colombian agricultural sector. The sector is mostly supported through measures that distort markets, while general services have been neglected. Market price support (MPS) is the dominant form of support to producers and is provided through border protection through high import tariffs, tariff rate quotas and in particular the Andean Price Band System (SAFP). Colombia also implements a range of policies aimed at price stabilisation (Price Stabilisation Funds, FEP) which contribute to the high levels of price support. An assessment of the effectiveness of the Price Stabilisation Funds used in several agricultural products could be carried out. Critical areas such as infrastructure, agricultural research and development (R&D) and agricultural knowledge transfer and farm restructuring continue to receive limited support. Short term responses to the problems faced by agricultural producers have diverted scarce economic resources from the need to develop the enabling environment for more inclusive and sustainable agricultural growth. Input subsidies are an important feature of the policy landscape, and dominate the budgetary transfers to producers. Specific programmes are also in place related to land rights. Programmes should be more targeted to specific objectives and overlap between measures should be reduced. The majority of programmes cover very broad and different areas and are implemented through a bundle of policy instruments with unclear impact. A thorough review and impact assessment of the wide array of policy instruments and programmes to support agriculture, including those implemented by private producer associations with government support would allow the redefinition and reorganisation of policy instruments based on evidence of costs and benefits. Institutional co-ordination should be improved and information better disseminated to farmers. Colombia faces the twin challenges of high concentration of land ownership and the underexploitation of arable land. Improved land rights should contribute to long-term growth in the agriculture sector and promote rural development. 67

68 Table 2.6. Colombia: Estimates of support to agriculture 68

69 Contextual information 141. Colombia is the fifth largest and the third most populous country in Latin America, with a surface of 1.1 million km 2 and a population of 47 million people. It is the only South American country that borders both the Atlantic and Pacific Oceans, and Colombia has abundant agricultural land and fresh water, is very biodiverse and is rich in natural minerals and fossil fuels. Agriculture continues to be an important sector for the country accounting for 17% of employment and 6.3% of GDP in The sector makes a significant contribution to national exports, with agro-food exports accounting for 13% of all exports in Colombia is a net exporter of agricultural and food products with a net surplus of USD 1.1 billion in Colombia has a highly dualistic distribution of land ownership where traditional subsistence smallholders co-exist with large-scale commercial farms. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Colombia International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.8% Population (million) % 1.4% Land area (thousand km 2 ) % 1.5% Agricultural area (AA) (thousand ha) % 1.7% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) % 0% 100% 200% 300% Average of all countries analysed Share of arable land in AA (% ) Notes: * or latest available year.1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. doi: /agr-pcse-data-en 379% 324% * 69

70 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 142. Productivity has been a key priority sector for the government, but agricultural policies implemented over the past 10 years have not helped to achieve this goal. Low productivity undermines the sector s competitiveness, largely driven by infrastructure deficiencies, unequal access to land and land use conflicts, as well as weak supply chains. The growth rate of the Total Factor Productivity (TFP) was only 1.1% over the period , far below the world average. Exports are mainly in products for primary industry used and products for primary consumption and represent more than 70% of total agricultural exports. Agriculture is also the main water user with a share of 60% total water use, above the OECD average of 40%. Figure Composition of agricultural output growth average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% 1.1% 0.4% 0.5% -0.3% Colombia 1.7% 0.4% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Colombia Imports Exports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Colombia Energy consumption n.a GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 1.62% 1.13% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison 8 n.a. % Deviation from OECD average 1-100% 0% 100% 200% 300% * 70

71 Development of support to agriculture 143. Colombia s aggregate level of support to producers (%PSE) averaged 17% of gross farm receipts over the period Market price support (MPS) is the main component of the PSE accounting for around two-thirds of the total support provided over the period MPS is mostly determined by the use of border measures for several agricultural products like maize, rice, poultry, milk, sugar, and pig meat. Budgetary transfers accounted for one-fifth of PSE during and have been dominated by payments based on variable input use. Expenditures on general services (GSSE) have been relatively small, accounting on average for 16% of the total support estimate (TSE) during the period PSE as % of receipts (%PSE) Since the 1990s Colombia has provided important levels of support to its farmers. The PSE for was 17% of gross farm receipts % 17% Potentially most distorting support as % of PSE Around 85% of PSE is linked to commodity market price support alone (MPS, payments based on output and unconstrained input use). These types of support are considered to be the most production and trade distorting measures % 85% Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers, on aggregate, have been estimated to be 14% higher than those observed in the world markets in TSE as % of GDP Total support to agriculture represents 1.6% of GDP for the period , which is higher than the OECD average of 0.7%. The share of expenditures on GSSE in TSE is 16% in % 3.0% Decomposition of change in PSE, 2014 to 2015 Transfer to specific commodities (SCT), % PSE +7.4% MPS -7.9% BUDGETARY PAYMENTS Price Gap Quantity +7.2% +0.2% MPS Payments based on output Other SCT Maize Rice Palm oil Sugar Milk Beef and veal Pig meat Poultry Eggs Plantain Coffee The level of support in 2015 declined slightly as the effect of the increase of the market price support was compensated by the reduction of budgetary payments. -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The most important Single Commodity Transfers (SCT) were for maize, sugar, rice, pig meat, poultry of commodities gross farm receipts. 71

72 Description of policy developments Main policy instruments 144. Agricultural policy in Colombia is shaped by both the National Development Plan (PND) and more recently the 2015 Colombia Siembra initiative. This new policy framework will come into effect over the period It aims to raise agricultural production through an increase in the planted area and yields of several crops. This initiative plans to create a zooning programme, a risk management programme and a range of financial instruments for producers, as well as to improve extension and technical assistance services Market price support (MPS) is the dominant form of support to producers. MPS is provided through border protection with domestic markets for many agricultural products protected by import tariffs in particular the ones under the Andean Price Band System (SAFP). The SAFP applies to 13 commodities and their related first-stage processed products: rice, barley, yellow maize, white maize, soya beans, wheat, unrefined soya bean oil, unrefined palm oil, unrefined sugar, refined sugar, milk, chicken cuts and pig meat Colombia also implements a range of policies aimed at price stabilisation which also contribute to the high levels of price support. Producer associations finance and administer the commodity Price Stabilisation Funds (FEP). Six commodities are covered by a fund: cotton, cocoa, palm oil, sugar, beef and milk. FEPs make payments (covered by farmers contribution, there is no government component) to producers when the selling price of a product falls below a minimum (floor) price. When the sales price of a product is higher than an established maximum (ceiling) price, producers contribute to the FEPs. The ceiling and floor prices are established by a Council formed by stakeholders and government, based on selected international prices for each product. These two combined mechanisms, SAFP and the FEPs, influence domestic prices which are normally higher than international prices Input subsidies are another important feature of the policy landscape, and dominate the budgetary transfers to producers. Several programmes provide different types of input support. The Rural Development and Equity programme (DRE) has four components: 1) the Rural Capital Incentive (ICR); 2) the Special Credit Line (LEC); 3) the technical assistance support; and 4) the subsidies for land investments in drainage and irrigation. These components provide subsidies ranging from variable inputs like purchases of seed or renovation of crop plantations, to fixed capital formation such as subsidies for farm irrigation and drainage infrastructure, and on-farm services like subsidies for individual technical assistance as well as credit. The Commercialisation Fund Project has various components with different implementation mechanisms that provide input subsidies, payments based on output (in 2015 payments were directed to rice, milk and cocoa), and include promotion programmes of agricultural products. Income Generation and National Productive Capacities Development programme was created in 2015, and provides different inputs subsidies. This programme was the most important in terms of budgetary expenditure. Fund for Agriculture Development (Fondo Fomento Agropecuario) programme was strengthened in 2015, and became the fourth programme in terms of outlays. The Productive Alliances programme seeks to link smallholders to formal marketing structures. It finances investments and has components of variable inputs subsidies, fixed capital formation subsidies, on-farm services, as well as components of general services. 72

73 148. Colombia also makes use of a number of specific credit subsidies. Financing instruments relate to the access to credit (including subsidised credit interest rates), debt rescheduling and insurance programmes. The Financing Fund for the Agricultural Sector (FINAGRO) is a second-tier bank. Specific credit lines are for: i) working capital and marketing; ii) investment, and iii) the normalisation of portfolios from which farmers have benefited from debt rescheduling and sporadic write-offs. The National Agricultural Revitalisation Programme (PRAN) provides resources to restructure liabilities, adjust overdue loans and end litigation processes, as well as providing producers with the opportunity to reinstate their credit rating. FINAGRO also manages the Agricultural Guarantee Fund (FAG) that provides collateral to farmers, particularly smallholders. In terms of insurance, the government subsidises up to 80% of premium, depending on the type of producer and whether the area to be insured has been financed with credit resources of FINAGRO Specific programmes are also in place related to land rights. These programmes are targeted at addressing land issues of displaced population. The aim of these policies is to return the land rights to those who were dispossessed due to the long-standing internal conflict. The Victims and Land Restitution Law (Law 1448 of 2011) constitutes the first piece of legislation enacted to redress the suffering caused to millions of victims and internally displaced persons by the country s internal conflict. Complementary, land formalisation, titling and investment in irrigation and drainage programmes have seen their budget increased over the past two years. These initiatives respond to the ongoing peace negotiation between the government and the guerrillas (FARC) Expenditures on general services have only been around 16% of TSE for the period These include investments in agricultural research and transfer, inspection and control, animal and plant health, infrastructure (including farm restructuring), marketing, and promotion. Domestic policy developments in Several institutional reforms took place in For instance, the INCODER, the institution in charge of rural development and land issues, was dismantled and its functions will be implemented by several newly created agencies: the National Land Agency (Agencia Nacional de Tierras, ANT); the Rural Development Agency (Agencia de Desar rollo Rural, ADR); and the Renovation of Territory Agency (Agencia de Renovación de Territorio, ART) The ANT is the highest authority in the nation on land matters and will execute policies on land ownership formulated by the Ministry of Agriculture (MADR). For this purpose, the agency will manage the land access to be used in productive agricultural activities. It will also provide the legal security of land ownership and will manage and dispose rural properties like baldios and land owned by the State The ADR agency will execute MADR s agricultural and rural development policies that have a territorial focus. This will be done through the structuring, co-financing and executing projects for rural development at the national and territory level. It will also strengthen the management of agricultural and rural development projects, with the aim to improve life conditions of the rural population and the competitiveness of the country The ART agency aims to coordinate any intervention of national and territorial entities in rural areas affected by the conflict. It will execute projects and programmes for the renovation of these zones and promote economic, social and institutional consolidation of these territories. 73

74 155. Two new national superior councils were created. 18 The Superior Council of Rural Land Planning Management will formulate general policy directions and coordinate the implementation of public policies of rural land management that consider environmental, social, productive, territorial, economic and cultural factors. The Superior Council of Land Restitution will formulate general directions and coordinate the implementation of public policies on land restitution matters A new important programme was created in 2015, the Income Generation and National Productive Capacities Development, with outlays equivalent to COL 460 billion (USD 167 million). Around a quarter of this programme is given through a range of different inputs subsidies to farmers like variable inputs and fixed capital formation support. Three-quarters of the programme delivers general services such as irrigation, marketing and promotion, extension services, among others. Several other input subsidy-related programmes continue to have an important role. For instance, the Commercialisation Fund and the two components of DRE, the ICR and LEC provided more than COP 625 billion (USD 228 million) in input subsidies in These programmes combined accounted for around 16% of total government outlays on the sector The Fund for Agriculture Development (Fondo Fomento Agropecuario) programme was strengthened in 2015 and became the fourth programme in terms of outlays with COL 230 billion (USD 84 million). It provides a range of different kinds of input subsidies (variable, fixed and farm services). The other major government outlays related to the Productive Alliances programme that accounted for COL 37 billion (USD 13.6 million) of budgetary outlays. Financing instruments administered by FINAGRO that include implicit credit through subsidised interest rates accounted for COL 113 billion (USD 41 million). Other programmes on debt rescheduling, write-offs accounted for COL 79 billion (USD 29 million). Farm restructuring, land formalisation, titling and programmes have seen their budget increased over the past two years and in 2015, COL 256 billion (USD 93.5 million) were spent on these items. Trade policy developments in Negotiations are ongoing with Japan and Turkey for the establishment of new FTAs. Recently completed negotiations have seen the FTA with the United States enter in force in May 2012 with the FTA with the European Union coming into effect in August A unique feature of the agreement with the United States is the provision for changes to domestic support (MADR, 2013; OAS SICE, 2015) In 2015, the Colombian government implemented a series of trade policy measures that affected elements of import duties. For instance, all tariffs for fertiliser and pesticide imports were dismantled (Decree 2180).Tariffs for beans, lentils, and garlic were set to 0% (until June 2016) as well as for palm oil (until August 2016). Tariffs for sugar were set to a maximum of 70% from a 117% in previous years. References MARD (2016), Report of Agricultural Policies to OECD, Ministry of Agriculture and Rural Development, Bogotá, Colombia. 18. These councils are national government agencies responsible for formulating policy guidelines as well as coordinating and implementing public policies. These councils were needed to respond to the dissolution of INCODER agency. 74

75 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 7. EUROPEAN UNION Support to agriculture 160. The European Union has gradually reduced its support to agriculture since the mid-1990s. New instruments, in particular payments that do not require production have gained weight. However production-linked support rose in 2015 as prices increased on average at the EU level in a context of lower world prices. An overwhelming share of support to the sector, as measured by the TSE, goes to producers (more than 85%). Investments in knowledge and infrastructures are the main components of general services to the sector at large, as measured by the GSSE. Figure 2.7. European Union: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Million EUR Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million EUR Panel B. Producer Support Estimate as % of gross farm receipts (%PSE), % European Union OECD Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), Main policy changes 161. The main policy developments are linked to the phasing out of the CAP and the progressive implementation of the CAP Also of importance were the end of the milk production quota in April 2015 and the introduction of a number of emergency measures aiming to offset the market and income effects of a ban imposed since 7 August 2014 by the Russian Federation on imports of selected agricultural products from the European Union. 75

76 Assessment and recommendations Policy reforms since have considerably reduced the level and improved the composition of support. Payments that do not require production have gained weight. They offer producers the flexibility to respond to market signals and to make their production choices independently from government intervention. The end of the milk production quota in 2015 and the sugar quota in 2017 are important further steps away from production and trade distorting measures. However policy instruments remain in some sectors that disconnect prices paid to producers from world market prices. In 2015 they accounted for 32% of support to producers as measured by the PSE. The share of payments requiring production has increased. Payments that encourage specific commodity production are not evenly used across member states; they influence production choices at the farm level and may distort competition. The CAP s small farmers scheme and the flexibility to introduce additional payments for the first hectares have redistributive effects, they may slow structural adjustment. Thirty percent of direct payments are conditional to farming practices targeted to the environment; while exceptions to cross-compliance and greening requirements are permitted. The efficiency of greening measures should be assessed against the ambition to enhance the enforcement of environmental stewardship. Market access for agricultural products has improved through bilateral agreements and the reduction of applied tariffs. However, import and export licensing, Tariff Rate Quotas (TRQs) and special safeguards continue to apply to a number of products. Substantial progress has been made in reducing the level of support and the share of production and trade distorting support. However the CAP partly reverses this trend. Commodityspecific payments have increased as EU member states have used greater flexibility to implement coupled payments. Amendments to the CAP should focus on offering European farmers a levelled playing field, deepening market orientation and better targeting support to improve the long-term productivity, sustainability and efficiency of the sector. The allocation of a greater share of the budget to research and innovation programmes under the Horizon 2020 is a move in the right direction. 76

77 Table 2.7. European Union: Estimates of support to agriculture 77

78 Contextual information 162. The European Union is the largest economic region covered in this report. Its average GDP per capita is below the OECD average. After a severe slow down since 2008, GDP growth in the area recovered slightly since Unemployment is down to 9.4% from its record high of 11% in 2013 and with wide differences across member states. The EU s agro-food sector is well integrated in world markets, and the EU is the largest importer of agro-food products and the largest exporter since In 2014, agrofood products accounted for 7.1% of all EU exports and 6.3% of all EU imports. The share of agriculture in the economy is declining, it accounts for 1.6% of GDP and 4.3% of employment, with significant differences across member countries. Farm structures and production systems are very diverse. On average, agriculture occupies more than half of the territory and the share of arable land in the agricultural area is twice as high as the average of countries covered in this report. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators European Union International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 23% Population (million) % 14% Land area (thousand km 2 ) % 5.5% Agricultural area (AA) (thousand ha) % 6.9% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Average of all countries analysed Notes: * or latest available year.1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. doi: /agr-pcse-data-en * 78

79 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 163. Over the period, the annual agricultural output growth of the EU averaged at zero, three percentage points below the world s average. During the same period Total Factor Productivity (TFP) grew by 1.5% per year on average, nearly double the growth rate in The growth of TFP enabled the reduction of intermediate inputs and primary factors, and the sector used less nutrients and water than in the 1990s. Half of agro-food imports are for final consumption and the other half are destined to the industry, while 70% of exports are for consumption and mainly as processed products. Figure Composition of agricultural output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 1.5% -0.4% -1.1% European Union 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery.in this figure, the country coverage of the EU aggregate excludes Slovenia and Croatia because of lack of data. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Exports % Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators European Union Imports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en 18 Energy consumption 24 Processed for consumption Processed for industry % OECD European Union GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 0.79% 1.50% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison n.a. Deviation from OECD average 1-100% 0% 100% 200% 300% * 79

80 Development of support to agriculture 164. The European Union has gradually reduced its support to agriculture since the mid-1990s, in particular the potentially most production and trade distorting forms of support. The level of price distortions, as measured by the Nominal Protection Coefficient (NPC), has been significantly reduced. However production linked support was on the rise in 2015 as EU average prices have increased in a context of lower world prices. PSE as % of receipts (%PSE) Support to producers as measured by the %PSE has declined gradually and consistently over the long term. Most of the decline in recent years reflects reduced budgetary payments. Support in the EU28 is slightly above the OECD average of 18% in % 34% 39% Potentially most distorting support as % of PSE The European Union has progressively reduced market price support and protection at the border and increased direct payments to farmers, mostly with no requirement to produce and subject to cross-compliance. The downward trend of the potentially most distorting support (based on output and variable input use without input constraints) reversed in In it accounted for 29% of the PSE, reflecting higher levels of support based on commodity output. Ratio of producer price to border price Producer Nominal Protection Coefficient On average, prices received by farmers were 6% higher than those on the world market in While domestic prices for most commodities were closely aligned with border prices, prices received by wheat, sugar and beef farmers were higher than world prices (by 14%, 53% and 32% respectively). TSE as % of GDP Total support was 2.6% of GDP in , declining to 0.7% by The share of expenditures on general services (GSSE) in total support (TSE) has increased, from 8.2% of TSE in to 12.2% in % 64% 29% % 1.5% 0.7% -0.5% PSE Decomposition of change in PSE, 2014 to % MPS -6.1% BUDGETARY PAYMENTS Price Gap Quantity +6.2% -0.6% The level of support was almost constant in 2015.Lower budgetary payments nearly offset the rise in market price support. This rise was due to an increase of domestic prices and to a simultaneous reduction of border prices in USD (-18.1%). The evolution of the EUR/USD exchange rate moderated the decline of the border price at farm gate at 0.8%. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Maize Rice Sugar Milk Beef and veal Pig meat Poultry Sheep meat Eggs Tomatoes Wine Potatoes Flower 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Single Commodity Transfers (SCT) represented 28% of the total PSE. Beef and veal (31%), sugar (28%) and sheep meat (12%) had the highest share of SCT in gross farm receipts in

81 Description of policy developments Main policy instruments 165. The Common Agricultural Policy (CAP) is the main agricultural policy instrument of the European Union. Outside the CAP framework, member states may implement measures funded from national budgets that target specific sectors or objectives, as long as they comply with the European Union s State Aid rules and do not distort competition within the common market The CAP typically covers a seven-year period. It is composed of two Pillars. Pillar 1 is funded by the European Agricultural Guarantee Fund (EAGF). Pillar 2 funds come from the European Agricultural Fund for Rural Development (EAFRD). Measures under Pillar 2 are based on Rural Development Programmes (RDP) put forward and co-financed by EU member states. Member state RDPs are deployed over the seven year CAP programming period The current CAP, CAP , was implemented progressively over 2014 and While some Pillar 1 measures were started in 2014, the implementation was completed when the 118 national Rural Development Programmes (RDP) under Pillar 2 were approved in December The overall budget for the CAP for the period is set to EUR 408 billion (USD 453 billion); of which 76% are allocated to Pillar 1, covering market related expenditure and direct payments, and the remaining 24% to Pillar 2. The distribution between Pillars may be re-examined in Pillar 1 defines and funds market measures under the common market organisation, as well as direct payments, mostly per hectare payments that do not require production. To this purpose, entitlements to direct payments were assessed and allocated to those deemed active farmers for the entire period of the CAP The Basic Payment Scheme (BPS) 19 and the Single Area Payment Scheme (SAPS) - its equivalent that applies in so-called new member states, make up about half of the EU direct payments envelope. Both the BPS and the SAPS are conditional to cross-compliance requirements. 20 Additional conditions are attached to the per-hectare Greening 21 top-up payment that makes up 30% of direct payments. 19. The basic payment scheme applies in the EU15, Malta, Slovenia and Croatia. The EU15 comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom. 20. All direct payments and most rural development payments are conditional to statutory management requirements and to rules on good agricultural and environmental conditions (GAEC), also known as crosscompliance. Cross-compliance also requires adherence to environmental and animal welfare standards as well as standards related to food safety and animal and plant health Greening is conditional on three farming practices. 1) A minimum of 5% of a farm s land is covered by the so-called Ecological Focus Areas (EFA). A list of EFA elements has been drawn at the EU level. Member states may select specific elements or the entire list. Farms smaller than 15 hectares of arable land are exempt. 2) Maintenance of permanent grassland. The ratio of areas of permanent grassland to the total agricultural area at national level should not decrease by more than 5% and there is a ban on the conversion of environmentally sensitive permanent grassland. 3) Crop diversification on arable land: this condition is more restrictive as farm size increases. Farms with less than 10 hectares of arable land are exempt, while 81

82 171. In the ten member states that apply the SAPS, commodity-specific payments funded from national budgets may accompany transition from market measures within limited envelopes. The transitional national aid (TNA) is paid from national funds in addition to the SAPS to specific commodities. 22 A fixed share can be spent on current production. Member states may review TNA budgets and supported commodities on an annual basis As the CAP unfolds, per-hectare payment rates are to converge gradually between countries (external convergence) and within countries and regions (internal convergence).. 23 Internal convergence only applies to the BPS as, under the SAPS, a uniform payment rate at national level already applies to each hectare In the CAP , part of the direct payments envelope is allocated to commodity specific payments at the EU level. Choices of Member states on the take-up of the voluntary coupled support (VCS) are very variable, both considering the level of support and commodities supported. 24 As a result, out of the 28 EU member states, 27 have chosen to offer VCS, using 10% of EU direct payments on average. This compares to 3% that was spent previously under Article 68 coupled support as reported in European Union s general budgets A top-up payment to young farmers applies in all member states. In 2015, the payment uses 1% of the European Union s direct payments envelope, as reported in the general budget. At national level, member states may spend up to 2% of their direct payments envelope on this measure. Different implementations choices have been made, either offering recipients a flat payment rate on a limited number of hectares or applying a payment proportional to support received Fifteen member states have chosen to offer small farms a simplified payment setup that waives the compliance to greening and cross-compliance requirements. The payment cannot exceed EUR (USD 1 366) per farm and, depending on the method chosen by the member state, the overall envelope may be limited to 10% of national direct payments. larger farms between 10 and 30 hectares must grow at least two and, farms larger than 30 hectares, at least three crops. Member states may also implement practices equivalent to the three greening farming conditions described above through environmental certification schemes or rural development programmes. In eight member states national certification schemes or commitments under the rural development programmes replace Greening. 22. TNA payments are generally historical payments. They replaced the Complementary National Direct Payments (CNDP) and may apply on a per area basis to arable land, hop and starch potatoes, on a volume basis to milk and on a headage basis to livestock. TNA may also be provided to new farmers. 23. Six member states, Greece, Spain, Finland, Germany, the United Kingdom and France have chosen to apply harmonised payment rates at the regional level Member states may offer commodity-specific support to the following commodities: cereals, rice, oilseeds, sugar beet, grain legumes, fruits and vegetables, starch potato, nuts, olive oil, protein crops, hops, seeds, flax, hemp, dried fodder, cane, short rotation coppice, chicory, milk, beef, veal, sheep and goats, and silkworms. 25. The European Union general budget is published annually and can be found at 82

83 176. Eight member states 26 have chosen to grant higher payments to the first hectares, under the socalled redistributive payment, using 4% of the European Union s direct payments envelope as reported in European Union s general budget. One member state implements the additional payments to Areas with Natural Constraints (ANCs) defined on the basis of eight biophysical criteria, using 0.3% of its national direct payments envelope A mandatory minimum 5% reduction applies in all member states to support amounts of the BPS above EUR (USD ) per recipient, under so-called degressivity. In nine member states the amount that is exempt from the 5% reduction is increased by the value of salaries paid. Nine member states have chosen to apply higher percentage reductions; as high as 100%, resulting in a full capping of the BPS at levels varying from EUR (USD ) to EUR (USD ) A Crisis reserve holds an annual budget of EUR 400 million (USD 443 million) at 2011 prices that can be used in case of emergency situations. If not used in the current year the envelope is reverted for use in the next year as Pillar 1 direct payment while the crisis reserve is revived and set aside in case of emergency The POSEI scheme (Programmes dʼoptions Spécifiques à lʼeloignement et à lʼinsularité) supports farming in the European Union s outermost regions by using production related payments. 27 The scheme supports access to food, feed and inputs for local communities and also the development of local agricultural production with a little more than 1% of the direct payments envelope Pillar 1 also funds market price support measures, with 5% of the overall agriculture and rural development budget. While the possibility exists for public intervention for cereals, namely common and durum wheat, barley and maize, it has not been applied in recent years. Purchase at the cereal intervention price is limited to 3 million tonnes of common wheat, beyond which purchase is by tender. Public intervention for durum wheat, barley and maize can be opened under special circumstances by means of tendering. Public intervention also applies to paddy rice. Sugar is supported through production quotas and support to private storage. The minimum price for quota beet is set to EUR (USD 29.16) per tonne until the end of the sugar quota regime, on 30 September After that date, existing provisions for agreements between sugar factories and growers will be maintained, and white sugar will remain eligible for private storage aid. The support regime for cereals and sugar also comprises trade protection through tariffs, tariff rate quotas (TRQs), and, under certain markets circumstances, export subsidies Fruits and vegetables are eligible for commodity specific payments; they are also supported through various market measures. These include crisis intervention measures that may be managed by producer organisations, an entry price system (minimum import price) for some products, ad valorem duties but no export subsidies. Member state co-financed aids also apply to the fruit and vegetables sector as well as the olive oil and table olives sector. These support a wide range of actions from production planning, quality measures, market withdrawal and harvest insurance to training, promotion and communication. Some of these measures apply at farm level while others are provided to producer organisations or to the sector at large. Also directed to the fruit and vegetables sector, a consumer support system targeted to school children covers the consumption of fresh fruits and vegetables, processed fruits and vegetables, and banana products. The scheme s budget has grown rapidly from EUR 29 million 26. Details on member states choices with regards to direct payments can be found at The POSEI covers the Canary Islands (Spain); the Azores and Madeira (Portugal); the Réunion, Guadeloupe, Martinique, French Guyana (France); the Aegean Islands (Greece), and from 2014 the French Island of Mayotte. 83

84 (USD 32 million) when it was first implemented in 2010 to the current EUR 150 million (USD 166 million). The scheme covers the supply and costs related to logistics and distribution. Member states typically contribute 25% from national budgets while this share is lowered to 10% in less developed and outermost regions. Private storage may also be activated as an optional scheme for olive oil and flax fibre. In the CAP the rules on recognition of Producer organisations and inter-branch organisations are expanded beyond fruits and vegetables. Although no direct financial support is associated to producer groups and inter branch organisations, occasionally, benefits are greater should producers claim support via producer groups. This was the case when compensation payments related to the Russian embargo on imports were doubled should a farmer place a claim through a producer organisation The wine sector is supported through promotion measures; both in the common market and in third countries, restructuring and conversion of vineyards, compensation for green harvesting, setting up mutual funds, investment in tangible and intangible capital, income insurance, development of new products, processes and technologies, and distillation of by-products Intervention prices are used for butter and skimmed milk powder together with import protection. Intervention purchase cannot exceed tonnes for butter, and tonnes for skimmed milk powder (SMP). Above those limits, purchase is made by tender. The consumption of milk and milk products by school children is supported through the school milk scheme with an overall budget of EUR 75 million (USD 83 million). The support rate is set to EUR per 100 kg (USD 20.13) and limited to 0.25 litre of milk per child and per school day. Member states may top-up the school milk payment with national subsidies. The beef market is supported by floor prices, tariffs, TRQs. Support for pig meat is provided by import protection. For sheep meat, the market support regime comprises tariffs and TRQs, with most country-specific TRQs subject to a zero customs duty. For poultry and eggs, there are TRQs. Export subsidies may be granted, under certain market conditions and within limits, to beef and veal, milk and milk products, pig meat, eggs and poultry meat. These market conditions were not met in 2015 and export subsidies were not granted. Private storage may be activated as an optional scheme for butter, SMP, certain cheeses, beef, pig meat, sheep meat and goat meat. Furthermore, specific provisions are made for milk and milk products As a result of these measures, prices paid to domestic producers were 6% above world market prices in , and the support they generated (Market Price Support) represented 24% of the estimated support to agricultural producers Pillar 2 funds are implemented through national (or regional) Development Programmes. Rural Development Programmes (RDP) also support projects using the LEADER approach (Liaison Entre Actions de Développement de l Économie Rurale) i.e. relying on a multi-sectoral approach and local partnerships to address specific local problems; as well as technical assistance for the implementation of Pillar 2 measures Member states participate in the funding of Pillar 2 payments in accordance with the RDP that cover the entire duration of the CAP cycle. In their plans, member states can choose from a menu of measures to meet the six priority areas of Pillar 2. Two conditions apply: a minimum 30% of rural development funding from the EU budget is spent on measures related to the environment and climate change adaptation, including forestry and investments in physical assets; and another 5% is spent on the LEADER approach. The six priority areas of Pillar 2 of the CAP are as follows: 1) fostering knowledge transfer and innovation; 2) enhancing competitiveness of all types of agriculture and the sustainable management of forests; 3) promoting food chain organisation, including processing and marketing, and risk management; 4) restoring, preserving and enhancing ecosystems; 5) promoting resource efficiency and the transition to a low-carbon economy; and 6) promoting social inclusion, poverty reduction and economic development in rural areas. 84

85 Figure Share of measures in Pillar 2 payments As a percentage of total Pillar 2 funds Investments in physical assets Agri-environment-climate Payments to areas facing natural or other specific constraints Farm and business development Support for LEADER local development Basic services and village renewal in rural areas Organic farming Investments in forest area development and improvement of the viability of forests Technical assistance Member States Co-operation Risk management Animal Welfare Knowledge transfer and information actions Restoring agricultural production potential damaged by natural disasters and catastrophic events and introduction of appropriate prevention actions Advisory services, farm management and farm relief services Early retirement Natura 2000 and Water Framework Directive payments 0% 5% 10% 15% 20% 25% Note: Excluding measures that account for less than 0.5% of total Pillar 2 funds Source: European Commission Rural Development is part of the EU-level Common Strategic Framework covering all support from European Structural and Investment (ESI) funds (the EAFRD, ERDF, Cohesion Fund, ESF and EMFF) in member states through partnership agreements The launch of the European Innovation Partnership for Agricultural productivity and Sustainability (EIP-AGRI) in 2012 was followed by integrating the Horizon 2020 programmes that are specific to research and innovation in agriculture into the CAP The main focus of the Horizon 2020 programmes relevant to agriculture is on securing sufficient supplies of safe and high quality food and other bio-based products. Its budget has increased since it was initiated in 2013 from EUR 1 million (USD 1.11 million) to EUR 19 million (USD 21 million) in 2014 and EUR 79 million (USD 88 million) in Domestic policy developments in Policy developments resulting both from the European Union s CAP and national member states decisions are described in this section. Examples from member states, based on information available, are used as illustrations of these developments and the list of policy developments is not exhaustive Between 2014 and 2015, the EU budget on agriculture and rural development (title 05) decreased by about 1% to EUR 55 billion (USD 61 billion), of which about 4% was disbursed as market intervention measures, 74% as direct payments under Pillar 1 and 20% as Pillar 2 measures. 85

86 191. The main policy developments in the past two years are linked to the phasing out of the CAP and the progressive implementation of the CAP Also of importance, the end of the milk production quota by April 2015 and the introduction of a number of emergency measures aiming to offset the market and income effects of a ban imposed since 7 August 2014 by the Russian Federation on imports of selected agricultural products from the European Union Member states reassessed the distribution of entitlements to direct payments. Under the SAPS, a uniform payment rate at national level already applies to each hectare. Under the BPS, three main models are available to member states to achieve internal convergence, at national or regional level 28. Some member states apply a flat rate starting in Others will apply a flat rate in 2019, and most member states will apply partial convergence by In Spain new eligible surfaces were added Milk production quotas expired on 31 March 2015 as was decided by the 2008 Health Check. The transition was progressively achieved through annual increases of quotas. Milk production quotas had shaped the dairy production of the European Union since 1984 and their expiration is an important change to the Common Organisation of Agricultural Markets in this sector. The change had been anticipated by European dairy producers as shown by consecutive increases of production volume by 4% in 2014, and by another 2% in The prohibition of wine planting was phased out as foreseen at the end of 2015 and member states gradually introduce a system of authorisations for new wine planting between 1 January 2016 and 31 December The new system that should remain in place until 2030 allows for member states to authorise new plantings representing 1% of the planted vine areas per year. Authorisations would be automatically granted to producers to replace grubbing of an existing vine area The transition between commodity specific payments under Article 68 of CAP and the voluntary coupled support (VCS) resulted in a rise in the average commodity specific direct payments from 3% of the direct payments envelope in 2014 to 10% on average in In the Czech Republic the separate tomato payment was discontinued and the separate sugar payment was reduced. In France the suckler cow premia funded by national expenditures is now part of the VCS In 2015, Latvia put an end to decoupled TNA payments, while output-related TNA payments to suckler cows and ewes were continued. TNA payments were grouped with the VCS in the Slovak Republic in In the Czech Republic the fuel tax relief amounted to EUR 45 million (USD 50 million), making up 9% of State aid. A similar measure is in place in Hungary. In Latvia the excise tax rate for diesel fuel used in agriculture and aquaculture was increased from 0 to EUR 50 (USD 55) per 1000 litres of fuel. This tax applies on the first 60 to 130 litres of diesel per hectare depending on the use in agriculture, forest land and land under fish ponds Emergency measures introduced in response to the decision of the Russian Federation to stop imports of fruit, vegetables, meat, fish, milk and dairy products from the European Union and a number of other countries 29 as of 7 August 2014 were prolonged into Exceptional funds were made available in the 2016 budget when EUR 430 million (USD 477 million) was diverted mainly to support milk and pig 28. Detailed information on member state choices with regards to the convergence of the value of payment entitlements was published in December 2015 and can be found at The United States, Australia, Canada and Norway. 86

87 meat. Another EUR 30 million (USD 33 million) of EU funding was allocated to the distribution of dairy products as urgent response to humanitarian crises. Private storage was opened for pig meat In addition to European funds, member states announced compensatory measures. Funding for these measures was capped to par the amount paid from EU funds. Most countries used the maximum amounts allowed. Austria provided EUR 7 million (USD 7.8) to the milk and pig meat sector. In Belgium (Region of Wallonia) EUR 9.6 million (USD 10.7) was available overall, of which almost EUR 7.3 million (USD 8.1 million) was targeted to dairy and beef farmers, a remaining EUR 2 million (USD 2.2) being used for young farmers and EUR 0.3 million (USD 0.33 million) for pig farmers. Estonia added EUR 7.56 million (USD 8.4 million) to European funds targeted to milk producers, a further EUR (USD ) was used for fruits and vegetables. Dairy farms received EUR 10 million (USD 11 million) in Finland and pig farms EUR 8 million (USD 8.9 million). In addition, EUR 15 million (USD 17 million) was set aside for farms with poor financial situations. Measures targeting the fruit and vegetable sectors as well as the dairy and pig sectors were also met with payments from national budgets in Latvia, Poland and Slovenia. A menu of cash aid and exemptions from social security fees were used in addition in Portugal and a crisis Cabinet was created for the milk and pig meat sectors Disaster payments related to climatic events were disbursed in some member countries. In Austria EUR 5 million (USD 5.55 million) was made available to alleviate the effects of droughts. In addition, the production of forage was authorised on all Ecological Focus Areas and biodiversity protected areas. In France compensation was given to livestock farmers affected by droughts and grazing was authorised on set aside land A number of sanitary measures were introduced. In France a six months sanitary gap was imposed on duck producers whose farms were affected by avian influenza. Rebates apply to social security charges and cash flow advances will be made available together with employee training. Compensations will be available for producers and traders affected by restrictions on animal movements to cover the negative impacts of sheep blue tongue disease. A compensation of EUR 1.92 million (USD 2.13 million) was paid to pig farmers affected by African Swine Fever in Estonia. Breeders in Slovenia with cattle affected by anthrax will benefit from a temporary support aid for loss of income. Implementation of Pillar 2 Rural Development Programmes of the CAP Member states have started the transition to the new RDP. In Luxembourg the transition will result in higher expenditure on farm advisory services while the support rate for investment in agricultural assets will decrease As part of the knowledge creation and transmission, measures were introduced to support agricultural research and innovation. In Estonia the Research and development activities supports applied research project related to food safety, health, animal and crop production, rural economy and social studies. In Ireland the beef data and Genomics programme will support the improvement of quality efficiency of the national beef herd through the genomic selection. A total EUR 280 million (USD 311 million) is allocated to this programme. Knowledge transfer is also facilitated through the setting up of discussion groups to share experience, beginning in In Latvia EUR 2.9 million (USD 3.22 million) was allocated to breeding and increasing the genetic quality of the livestock sector, the dairy sector captured 62% of this amount. In the United Kingdom the first Centre of agricultural innovation was launched in October This centre is one of four and will focus on the use of agricultural metrics, data and modelling in the agri-food industry. The launch of the other three centres is foreseen in Advisory services have been expanded since 2016 in the United Kingdom (Scotland). In the United Kingdom (Northern Ireland) a Farm Business Improvement Scheme will be launched in 2016 with a focus on knowledge transfer, innovation, cooperation and investment in the farm sector. 87

88 204. In Austria, a total volume of agricultural investment loans of EUR 130 million (USD 144 million) was made available from national funds, which triggered an estimated investment volume of EUR 250 million (USD 277 million). In Ireland a little short of EUR 400 million (USD 443 million) will be spent on on-farm infrastructure and equipment through the Targeted agricultural modernisation schemes II. Investment in agricultural holdings will also be supported in Poland. In Spain, more than EUR 1 million (USD 1.11 million) of EU funds will be used for the modernisation of irrigation structures in conjunction with the national irrigation strategy Ireland s Family transfer partnerships supports farm succession while other tax measures support farmers and foresters In Latvia primary agricultural producers and cooperatives benefit from EUR 6.4 million (USD 7.1 million) for partial repayment of interests on credit Plant protection products regulations were reviewed in several member states. In Austria, this involves training certification for sanitary product retailers and advisors. In France the Agence nationale de sécurité sanitaire de l alimentation, de l environnement et du travail (ANSES) has been given authority to grant marketing authorisation for phyto-pharmaceuticals. In Luxembourg a plan was introduced to reduce the use of phytosanitary products, the plan also foresees a five crops rotation A new regulation on antibiotics use in livestock production came to force on 1 April 2016 in France whereby a list of 50 antibiotics can no longer be used for preventive treatment of livestock and should be avoided in case of illness. In June 2015 the Netherlands adopted an integrated One Health approach to antimicrobial resistance for the period targeting primarily the healthcare and livestock sector but also food and the environment. Innovation and international co-operation are important elements in the approach. Furthermore, in April 2015 the Dutch Government and the livestock sector signed the 4th voluntary agreement on the prevention and control of contagious animal diseases and its financial arrangements European Union Member States were granted the flexibility to restrict or prohibit the cultivation of a genetically modified organism (GMO) or of a group of GMOs in all or parts of their territory, with transitional measures introduced as of 2 April Austria has embedded the ban on the cultivation in its constitution. France has prolonged the moratorium on GM maize cultivation Several initiatives to protect consumer health came to fruition. France reached an agreement with meat processors to reduce salt and fat rates. In Greece the multi annual national control plan on consumer health and interest was issued for the period Several member states consolidated measures addressing organic farming and other quality schemes. The Organic Action Programme in Austria aims to enhance organic agriculture by overseeing not only production, sales but also education and research aspects. A similar programme in Estonia covers the entire food chain as well as research and training activities. The plan also promotes local consumption of organic food. In France, payments to organic farming increased. In Ireland EUR 56 million (USD 62 million) will be spent on organic farming. In Luxembourg the premium for organic farming was increased. A national environmental certification scheme was setup in Portugal for implementation in The scheme applies to voluntary industrial corn and tomato farms. In Poland applications for support for organic farming are being considered and costs incurred from joining quality schemes will be refunded to farmers and promotion activities will be supported Sectoral plans were developed. In Estonia, the development plan for the horticultural sector for was approved. The plan consists of advisory services to producers. Promotion programmes for 88

89 fresh milk and dairy products and grass-fed beef were initiated with EUR 0.77 million (USD 0.85 million) and EUR 0.6 million (USD 0.7 million) respectively. The latter is targeted to the hospitality sector in Sweden and Latvia. In Greece the Law for pasture lands was adopted that will support livestock farming. Luxembourg supports the promotion of its agricultural products Several member states have taken steps to facilitate the functioning of the food supply chain. In France a price increase has been agreed between retail and processors of dairy products, whereby part of the increase would be paid back to farmers. In Spain a mediator for food contracts and a bureau of the food chain are in place. Inter-branch organisations were developed. Following an inter-branch agreement, a pervolume payment was put in place for milk purchased from producers in Belgium (Wallonia). Spain authorised the creation of a beef meat organisation, inspired by the wine organisation. Portugal revised the legislation and setup a unique regulatory framework that oversees the minimum value of commercialised production, among other duties. In the United Kingdom (Northern Ireland) an Agro-food Processor investment Scheme will be launched in 2016 that will support capital investment in the food and drink processing sector As part of animal welfare measures, investment subsidies to pig meat and poultry housing make the most of national expenditure in Hungary As part of risk management tools, Spain increased the support provided to insurance subscription. A pilot project to extend existing public support for insurance premiums against hail and frost to droughts will be tested in Austria. Hungary reformed the agricultural risk management scheme to extend the mitigation scheme to cover autumn frost and plants grown under glass houses and plastic tunnels and reduced the threshold to claim compensation from 30% of farm revenue loss to 15%. EU funding from the scheme was switched from EAGF to EAFRD which resulted in an interruption in the transition period to the CAP In 2015 only national funds were available and focused on small farms. It is expected that larger farms be covered once EU payments resume. Luxembourg increased the rate of support for insurance contracts for farm crops. The insurance subsidy was lowered to 20% of the insurance premium in Slovenia from the previous 40% for crops and 30% for livestock. Latvia terminated the agricultural risk fund in In Denmark a new nitrates regulation is under development that would replace the current system of reduced fertilisation standards in In Greece the code of good agricultural practice for the protection of waters by nitrate from agriculture sources is being updated and should be implemented in In Luxembourg specific measures were implemented to compensate for prohibitions and legal requirements introduced in water protection areas. The Netherlands faced an increase in dairy husbandry after the end of the dairy quotas. A quota system for phosphate production will be introduced to contain the negative effects on the environment. In the United Kingdom the Countryside Stewardship scheme replaced the environmental stewardship. The new scheme is implemented through agreements with individual farmers based on local conditions and priorities. The Environmental Cooperation Action Fund offers support for collaborative environmental projects and the beef efficiency scheme aims to reduce emissions from the beef sector in the United Kingdom (Scotland). This will be accompanied by a compulsory soil testing to monitor nitrogen levels In Estonia economy wide strategies are being developed for adoption by the end of 2016, these consist of the General principles of Estonia climate policy till 2050 and the Estonia climate change adaptation development plan In France, the grass payments were assigned to new agrienvironmental measures, implemented at the farm level, in addition to the Agri-environment-climate measures (AECM) addressing local issues. The set of measures aims to cover all aspects of farm management.. In Greece the national strategy for the adaption to climate change and the National energy efficiency action plan have been put to consultation. Also under consultation in Greece is the proposal on 89

90 the costing and pricing rule for all water uses, including irrigation. In Ireland the Green Low-carbon Agrienvironment scheme allocates EUR 1.4 billion (USD 1.55 billion) to approved farmers for their contributions to biodiversity, water quality and climate change mitigation. In Sweden both the CO2 tax rebate and the energy tax rebate were reduced simultaneously. Farm carbon audits will be used in the United Kingdom (Scotland) to monitor emissions. The United Kingdom s (Northern Ireland) Climate change adaptation plan was updated in 2015 to include flooding and agricultural risks In February 2016, the EU circular economy package was published. The package addresses production, consumption and waste management and the use of waste as resource. It identifies Food waste as a priority area for action. Reducing food waste has been an objective for member states. In France a law was passed to reduce food waste and facilitate food donations, the law also encompasses educational actions. In Spain a strategy was developed to reduce food losses and to valorise former food Overarching policy frameworks were modified with the national implementation of Rural Development Programmes in each European Member State. Furthermore institutions were changed in Austria, where the Federal ministry of agriculture, forestry, environment and water management was reorganised to simplify administration and legal jurisdiction. In Belgium regional competences were extended to cover market intervention and export subsidies, animal welfare and the management of disaster funds. In France, fourteen agricultural and veterinary schools were grouped with four research organisations under the French Agronomy, Veterinary and Forestry Institute to ensure better activity coordination. In Greece the development of e-government will include agricultural registers and offer digital access to farmers. Trade policy developments in On 6 October 2015, the European Commission amended the tariff and statistical nomenclature on the Common Customs Tariff. 30 The amendment, that takes effect on 1 January 2016, aims to adapt the nomenclature to changes relating to statistical reporting, commercial policy, international commitments and other developments. The document sets the General rules and Special provisions, the Schedule of customs duties and the Tariff annexes, including agriculture 221. In 2015, export subsidy spending as reported in the EU budget was about EUR 1 million (USD 1.11 million) spent on poultry meat. This amount represents payments delayed from July 2013 when it was last activated. This reflects the significant and constant decline of the use of export subsidies, when compared to EUR 67 million (USD 89 million) in 2013 and EUR 3.7 billion (USD 4.6 billion) in According to the most recent EU notifications to the WTO on export subsidies commitments (June 2015), the European Union remained below its WTO commitment level for the marketing year 2013/ The European Union s simple average MFN applied rate for agricultural products, as published in 2016 by the WTO, was 12.2% in 2014, compared with 4.2% for non-agricultural products. Import duties on wheat have been suspended since Under an import quota for beef fed without hormones, tonnes are open for imports from Argentina, Australia, Canada, New Zealand, the United States and Uruguay According to the most recent EU notifications to the WTO (May 2015), import tariff quotas during the marketing year 2012/13 were filled at % for more than one-fourth of quotas, notably for meat of bovine animals, and zero to 5% of quota for one-third of them, notably for live bovines, meat of swine, eggs in shell and most cereals and also most dairy products except butter and cheddar cheese. In 2013, 40% of quotas were filled at %, notably for poultry cuts, potatoes and maize while one-fourth

91 of them had a fill-rate of zero to 5%. The latter was the case for live sheep, preserved fruits, orange juice and manioc The most recent EU notifications to the WTO (May 2015), states that the price-based special safeguard system has been made operational for some frozen poultry, egg and sugar products in marketing year 2013/14. During the same period, the volume-based special safeguard action has not been invoked. However, the system has been made operational at the level of calculation of figures for the trigger volumes for some fruit and vegetable products The WTO Dispute Settlement Panel, which was composed on 23 October 2014 at the request of the European Union to consider measures adopted by Russia affecting the importation of live pigs and their genetic material and pig meat, is expected to issue its final report to the parties by early April The European Union introduced a ban on imports of birds originating from countries affected by avian influenza. The ban will remain in place until 31 December The EU and Switzerland agreed to prolong until 31 December 2016 the derogation offered to Switzerland from the Trichinella examination of carcasses and meat of domestic swine kept for fattening and slaughter in low-capacity slaughter establishments. Carcasses and meat products must be marked and may not be traded with the Member States of the European Union The European Union has continued to provide unilateral trade preferences to Ukraine. Preferences include the removal of tariffs on most commodities, including over 80% of agricultural tariff lines, and duty-free tariff-rate quotas (TRQs) for grains, including wheat and flour ( tonnes), maize ( tonnes) and barley ( tonnes), and also for pig meat, poultry, eggs and egg products, beef and dairy products. These measures, initially agreed until 31 October 2014, were extended until 31 December The DCFTA with Ukraine entered into force on 1 January The end of the negotiations on the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada was announced at the EU-Canada Summit on 26 September Following the accomplishment of its legal review, the text of the agreement is awaiting translation in all EU official languages before it is presented to the EU Council and European Parliament as part of the ratification process Negotiation talks on the Transatlantic Trade and Investment Partnership (TTIP) that were initiated in July 2013 were continued. The thirteenth round of negotiations between the European Union and the United States took place on April Other free trade agreement negotiations have been initiated between the European Union and Japan (2013), Thailand (2013), India (2007), Malaysia (2010), Viet Nam (2012) and the Mercosur (2010). Other ongoing processes include negotiation with Morocco for a Deep and Comprehensive Free Trade Agreement (DCFTA), for which one round of negotiations was held in April 2013; and the Free Trade Agreement that was concluded between the European Union and Singapore at a political level in December The DCFTA that was agreed with Armenia will not be initialled. In November 2015, the European Union and Australia agreed to commence work toward the launch of negotiations for a Free Trade Agreement Five countries have candidate status to the European Union; Turkey (since 1999); the former Yugoslav Republic of Macedonia (since 2009), Montenegro (since 2010), Serbia (since 2012) and Albania (since 2014). 91

92 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 8. ICELAND Support to agriculture 233. Iceland's level of support remains among the highest within the OECD, although it has fallen significantly notably during the second half of the last decade due to higher world market prices and a strong devaluation of the Icelandic Króna. Reforms of the agricultural policies in Iceland have been limited, with a shift towards more decoupled payments in the sheep meat sector in the mid-1990s and the establishment of a market for dairy quotas. Nonetheless, due to falling international reference prices for dairy products, and to a lesser extent pig meat, support levels have picked up again in 2014 and 2015 to reach their highest level in almost ten years. The direct support to farmers (PSE) is the dominant part of the total support to agriculture. The Total Support Estimate has averaged -1.1% of the country's GDP in recent years. In contrast, support to general services corresponded to just over 4% of the total support, with much of it related to expenditures for inspection and control systems through the Agricultural Authority of Iceland Iceland continues to provide agricultural support through significant market price support (MPS), maintained by border measures, and through direct payments based on payment entitlements which are directly or indirectly coupled with production factors. Although it has fallen by about half over the period analysed in this report, the share of MPS in the total support to farmers continues to represent around 40% and has increased to 55% in Output payments for milk producers and the more decoupled payments to sheep meat producers represent most of the remaining PSE. As a consequence, three-quarters of farm support is provided through some of the most distorting forms, largely preventing farmers from receiving market signals and responding to them. Million ISK Figure 2.8. Iceland: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million ISK Panel B. Producer Support Estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Iceland OECD 92

93 Main policy changes 235. Within the continued application of the current multi-year agreements between the Government of Iceland and the Farmer's Association, changes to the agricultural policy are limited. Responding to increasing domestic demand, the milk production quota was increased by some 20% between 2013 and During that period, a number of production levies for producers of milk, sheep meat and horse meat were abolished. Finally, new regulations on the welfare of livestock aim to ensure the appropriate holding, care and medical treatment of livestock animals. Assessment and recommendations Iceland continues to provide high levels of agricultural support in forms known to distort agricultural production and trade and to prevent farmers from receiving market signals and responding to them. To reduce the level of support and its distortive effects in a sustainable manner, policies need to be changed away from border protection and in favour of measures less linked to production. The payments to sheep producers introduced in the mid-1990s are a step in this direction, even though some sheep holding needs to be maintained to remain eligible. Reforms need to efficiently target explicit policy objectives, including the protection of the environment and the conservation of natural resources, while reducing market distortions. The new animal welfare regulations are a good example, but an increasing share of support to farmers should be directly linked to the avoidance of negative externalities and the provision of public goods. More emphasis should also be given to a well-functioning agricultural knowledge and information system, for which public expenditures have been declining over the past decade. 93

94 Table 2.8. Iceland: Estimates of support to agriculture 94

95 Contextual information 236. Iceland is a relatively small, thinly populated economy with a GDP per capita slightly above the OECD average. At about 7% and 4.6%, respectively, the shares of the agriculture (including fish) in both GDP and employment are relatively high, largely due to the importance of the fishing sector. Iceland has been a consistent net importer of agro-food products (excluding fishery), with a total agro-food trade balance of USD -234 million in Agriculture in Iceland mainly consists of livestock production, with milk and sheep meat being the most important products. Horticulture, much of which is under glass, is an important sector too, and together with a few other crops represented some 13% of total agricultural production in Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Iceland International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.02% Population (million) % 0.01% Land area (thousand km 2 ) % 0.13% Agricultural area (AA) (thousand ha) % 0.07% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Average of all countries analysed Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en * 95

96 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 237. Thanks to the relatively low livestock densities, Iceland's nutrient balances show a comparatively low surplus of both nitrogen and phosphorous. The sector's relative energy use has fallen significantly over the past twenty years. Agriculture continues to represent a significant share in the country's total GHG emissions well above that for the OECD average, consistent with the importance the sector has in Iceland's overall economy. With just over 40%, the sector's share in Iceland's total fresh-water consumption is similar to the OECD average. While Iceland's output growth in agriculture has been slightly below average over the past decade, existing indicators show strong productivity growth, with the agricultural total factor productivity growing by 4% between 2003 and Figure Composition of agricultural output growth 5% 4% 3% 2% 1% 0% -1% -2% -3% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 4.0% -2.2% -0.2% Iceland 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Iceland Imports Exports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Iceland Energy consumption GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 0.17% 4.0% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison n.a. % Deviation from OECD average 1-100% 0% 100% 200% 300% * 96

97 Development of support to agriculture 238. After some declining levels until 2013, support to agriculture has increased significantly in both 2014 and 2015 to reach its highest level in almost ten years. Iceland remains among the five OECD countries showing the highest support to farmers, ranking third in Direct payments, largely based on historical livestock production, have replaced some of the former price support in the sheep meat sector, and together with international price movements and exchange rates have contributed to the long-term reductions in the level of price distortions as measured by the NPC. PSE as % of receipts (%PSE) Support to farmers as measured by the %PSE declined from 77% in to 49% in , but remains high compared to most other OECD countries. After having fallen to less than 42% in 2013, it jumped back to 56% in % 77% % Potentially most distorting support as % of PSE The share of potentially most distorting support (based on output and variable input use without input constraints) in total PSE has fallen over the past decades, mainly due to higher international commodity prices, the devaluation of the Króna since 2007, and the change in sheep meat payments towards historical entitlements in the mid-1990s. Still, these forms represent about three-quarters of the total PSE. Ratio of producer price to border price Producer Nominal Protection Coefficient In the long term, the ratio of producer prices (including unit output payments) to border prices has been reduced substantially, from over 4 in to 1.8 in Poultry, wool, eggs and milk show the highest NPC. Again, much of the decline was due to changes in reference prices, and the NPC has rebounded strongly since % 87% 77% 4.22 TSE as % of GDP Total support was 1.1% of GDP in , down from 5% in Expenditures for general services, as measured by the GSSE, represented some 4% of the TSE in the most recent years % 1.1% 5.0% +15.5% PSE Decomposition of change in PSE, 2013 to % MPS +1.2% BUDGETARY PAYMENTS Price Gap Quantity +11.6% +2.8% The level of support increased significantly in 2015, mainly due to lower border prices for dairy products. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Milk Beef and veal Pig meat Poultry Sheep meat Eggs Wool -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Single commodity transfers (SCT) represented more than 98% of the total PSE. The lowest shares of the SCT in commodity gross farm receipts are found for beef and veal (18%), the highest for poultry (72%) 97

98 Description of policy developments Main policy instruments 239. Agricultural policies in Iceland are based on two main legal acts: Act No. 99/1993 on the Production, Pricing and Sale of Agricultural Products (now the Act on Agricultural Produce) lays down the policy framework as well as provisions for production control, provision on slaughter and processing, market measures and producer support, whereas Act No 70/1998 on Agriculture lays down provisions for development projects, extension services and livestock improvements Within that framework, agricultural policies are determined by renewable multi-year agreements between the Government of Iceland and the Farmer s Association, which provide the general framework for support and production control for farmers in the covered sectors. The four agreements currently in force, all of which have been renewed in autumn 2012, are the Agreement on Dairy Production (due to expire in 2016), the Agreement on Sheep Production (due to expire in 2017), the Agreement on Horticultural Production (extended to now expire at the end of 2016) and an Agreement based on Act No 70/1998 mainly related to the Agricultural Productivity Fund, technical development and improved land cultivation, livestock improvement, and extension services Iceland s agricultural support continues to be provided through market price support, maintained by border measures, and through direct payments, which are based on payment entitlements, directly or indirectly coupled with production factors. Direct payments are provided to cattle (mainly dairy) and sheep producers, and on a smaller scale to certain greenhouse producers, while market price support is provided for all livestock products and some horticultural products Wholesale prices continue to be managed for approximately half of the dairy products. A government-chaired committee, representing both the Farmers Association and on behalf of the consumer side the labour union, annually determines guaranteed minimum prices for milk delivered within production quotas. Both production quotas and entitlements for support payments are tradable between farmers. While reference prices for sheep meat can be published by the Sheep Farmers Association, these have no binding effect on slaughter companies pricing policies Iceland maintains prices above world market levels for a range of livestock products, including the poultry and eggs sectors, milk products as well as, to a lesser extent, the pig meat sector. MFN tariffs for most meat and egg products are at 30%, and additional specific tariffs apply depending on the product. However, products originating in partner countries of the European Economic Area or in one of the more than 35 countries with which Iceland has free trade agreements may carry lower tariffs. According to the legislation on protection against animal diseases, imports of uncooked animal products require the permission of the Minister of Fisheries and Agriculture, based on recommendations by the Food and Veterinary Authority. 31 Imports of live animals are prohibited. With the 2015 amendment to the Act on the import of live animals, however, importation of bull semen and fertilised ova has been made possible subject to quarantine requirements for mother cows and calves. 31. In April 2015, Iceland's Supreme Court confirmed an earlier decision by the District Court of Reykjavic to seek an advisory opinion at the EFTA Court regarding the possibility that this requirement may be in violation of the European Economic Area legislation. In its opinion given in February 2016, the EFTA court concluded that the Icelandic authorization system for the importation of raw meat was not in conformity with the rules of the EEA Agreement. The matter is now before the District Court for final conclusion. 98

99 244. Payments based on historical entitlements have replaced output payments for sheep meat in the mid-1990s, and payment entitlements have become tradable among farmers. Keeping a minimum of winter-fed sheep on the farm is, however, required for being eligible to receive the payments. Additional payments to sheep farmers are related to a quality control scheme for lamb meat, based on animal welfare, product quality and traceability, and sustainability criteria. As from the end of 2015, responsibility for the administration of direct payments to farmers was moved from the Farmers Union to the Icelandic Food and Veterinary Authority Agricultural revenues are subject to a levy which is distributed within and between various agricultural bodies. Among these bodies is the Emergency Relief Fund: it grants compensation payments to farmers who suffer major financial losses after natural disasters or because of extreme weather conditions, animal diseases or accidents for which there are no insurances available on the market. Agri-environmental policies particularly focus on soil conservation and forestry: related payments aim at the reduction of desertification and sand encroachment, the promotion of sustainable land use, the reclamation and restoration of degraded land and new afforestation. Domestic policy developments in Mainly in response to the increasing domestic consumption of dairy products in Iceland, the milk production quota was increased from 116 million litres in 2013 to 125 million litres in The quota has been further increased to 140 million litres for the year From 1 January 2014, two dairy-specific levies were abolished. These include firstly the price transferral levy which used to be collected at delivery of milk to the dairy processor at a per litre basis to lower the price of certain dairy products. The price transferral levy amounted to ISK 313 million (USD 2.6 million) in Secondly, the price equalization levy, also collected at delivery of milk to the dairy processor at a per litre basis, used to help cover production cost differences between individual dairy processors, in particular lowering transportation costs of milk to dairy processors and of dairy products to the market. The price equalization levy amounted to ISK 92 million (USD 0.75 million) in With the July 2015 amendments to the Act on Agricultural Production, the production levy for sheep and horse meat was also abolished In 2015, the Government of Iceland and the Farmer s Association have worked on the new agricultural agreements on horticultural production, beef and dairy production, sheep production, as well as on an agreement on horizontal support for agricultural activities. These agreements will supersede the current ones which are scheduled to expire in 2016 and 2017 (see above). After signature of these agreements in February 2016, they are expected to pass through parliament to come into force in Between October 2014 and February 2016, several regulations on the welfare of livestock were published and entered into force. These aim to ensure that livestock animals do not suffer distress, hunger or thirst, fear or suffering, pain, injuries or disease. They also include minimum requirements for the holding and care of animals according to their natural behaviour. The regulations define responsibilities for covering animal welfare related costs, generally the owner or keeper, but potentially the municipality (in case of semi-feral animals) or the Ministry (for endangered species, wild birds and wild animals). Furthermore, rights and procedures for medication and surgeries are defined. Finally, the enforcement of the regulations has been streamlined by bundling responsibilities in one single enforcement authority, bundling regulations under one single Act and bundling supervision in one single Ministry In November 2015, the Government of Iceland announced a new plan for reducing GHG emissions and tackling climate change, in line with the joint commitment of Iceland, the EU and Norway 99

100 to cut overall GHG emissions by 40% between 1990 and The new plan includes, among others, a reduction in emissions generated by fisheries, agriculture and land use. Trade policy developments in Iceland is a Member of the European Free Trade Association (EFTA) and of the European Economic Area (EEA). While the EEA Agreement does not apply to most trade in agricultural goods, it opens trade in a number of processed agricultural products and encourages bilateral agreements on primary commodities. Such a bilateral agreement between Iceland and the EU has been in force since 2007, extending the EU-Iceland Free Trade Agreement from It reduces or eliminates agricultural tariffs and establishes quotas in bilateral trade. In September 2015, Iceland and the EU signed additional Agreements to enhance the market integration between Iceland's and the EU agriculture, and to protect Geographical Indications. Pending ratification, the share of trade between Iceland and the EU that is dutyfree is to rise to 95% for processed agricultural products, and to cover a number of primary agricultural products. In addition, bilateral import quotas for a range of products, including cheese, beef, pig meat and poultry from the EU, and sheep meat, pig meat, poultry and skyr (a traditional dairy product) from Iceland, are to be expanded Furthermore, EFTA has a number of Free Trade Agreements with countries in South-East Europe, North Africa and the Middle East, Latin America, and Asia, as well as with the South African Customs Union. A bilateral Free Trade Agreement between Iceland and China came into force on 1 July In addition, Iceland has a bilateral Free Trade Agreement with the Faroe Islands. 100

101 9. INDONESIA Support to agriculture 253. Indonesia s current agricultural policy settings were put in place in 2012 with the implementation of a series of reforms accompanying the new Food Law. These reforms saw a rise in the importance of food sovereignty and food self-reliance as the guiding principles underpinning agricultural policy. In practical terms, this has led to the implementation of policies and programmes to achieve self-sufficiency (a long standing policy objective) in a number of products those of rice, maize, soybeans, sugar and beef Producer support to agriculture in Indonesia has increased significantly in recent years. The pressures to increase self-sufficiency through market interventions have seen significant gaps appear between domestic and world market prices these gaps have been compounded by the recent moderating of world market prices. With the vast majority of support provided in the form of market price support, Indonesia s percentage PSE rose from 20% of gross farm receipts in 2013 to 29% in Due to agriculture s large share in the domestic economy, total support to agriculture (%TSE) is also large at 4% the highest of all countries examined. In contrast, support provided in the form of payments to general services to agriculture (GSSE) is relative low, and between average 5.2% of TSE. Figure 2.9. Indonesia: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Billion IDR PSE GSSE Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Panel B. Producer support estimate as % of gross farm receipts (%PSE), Billion IDR 0 Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Indonesia OECD Main policy changes 255. During Indonesia has maintained the main features of its agricultural policy settings that were adopted in Market price support delivered through domestic and trade policy settings, along with budgetary transfers for variable inputs (mainly in the form of subsidies to fertiliser, seeds and credit) have been the main form of support provided to producers. The Government maintains minimum purchase prices for sugar, soybeans and paddy rice. Similarly, Indonesia has maintained its export tax arrangements 101

102 related to palm oil and cocoa, but in 2015, announced plans to increase the biofuels mandate to blend 20% palm biodiesel, up from 15% Fertiliser subsidies remain the most significant component of budgetary outlays provided to the sector. Funding for these has increased, with some of the savings generated by reforms to the country s fuel subsidy arrangements being channelled into this policy area. Government investment in irrigation infrastructure also continued to grow in 2015 as the Government of Indonesia has continued its push to improve the country s irrigation infrastructure. Much of this is targeted towards rice production For rice, BULOG maintains its market operations and purchasing functions. However, the effects of trade barriers associated with Indonesia s self-sufficiency policies have maintained domestic rice prices consistently above international prices. The market price support schemes for rice remain the most important contributor to the longer run significant increases in the level of support in Indonesia, as measured by PSEs, explaining close to 40% of the total PSE in this country in To counter some of these price effects, BULOG has continued to distribute rice within the RASKIN system. In 2015, this entailed large budgetary transfers to support the system of close to IDR 21 trillion (USD 1.7 billion), up from close to IDR 19 trillion spent in 2014 (USD 1.4 billion). Assessment and recommendations 258. The current direction of Indonesian agricultural policy has seen significant price gaps appear between domestic and international markets. The policy focus has been on self-sufficiency as a tool to achieve food security and food accessibility. However, the observed price effects are likely to be working against some of the main objectives that underpin the Food Law of And while the RASKIN programme has been put in place to improve food accessibility for poor households, recent OECD analysis has brought into question the effectiveness of this programme in improving food security as measured by rates of undernourishment (OECD, 2015) A number of reforms to the current policy setting would, if implemented, better situate Indonesian agriculture to contribute to improvements in food security, improve its productivity performance and to increase the accessibility of food to citizens. To ease dependence on rice supplies, and deliver greater improvements in food security, Indonesia might consider reforming the RASKIN system through replacing the in-kind rice distribution with conditional cash transfers. Fertiliser subsidies have been found to be costly and the extent to which benefits accrue to farmers has been questioned. A more efficient scheme would be to convert these subsidies to decoupled payments per unit of land as has been progressively implemented in China. A greater focus should be placed on policies that combat poverty and stimulate domestic productivity through investments in infrastructure, the innovation system and through easing constraints on private investment in agriculture. Budgetary savings from reduced input subsidises could be re-allocated to reinforce Indonesia s Agricultural Innovation System and to improve long-term agricultural productivity. Indonesia applies a growing number of administrative requirements on agro-food imports related to food safety, quarantine, product standards and labelling. The combination of these requirements, uneven enforcement and poor transparency over changing rules is adding to trade costs. Ensuring that requirements are set on a scientific basis and improving transparency and consistency in application should help ease these growing costs. 102

103 Table 2.9. Indonesia: Estimates of support to agriculture 103

104 Contextual information 260. Indonesia is the world s 4th most populous country and the 6th largest agricultural producer. The contribution of agriculture to Indonesia s GDP has remained relatively unchanged around 15% since the mid-1990s. However, its share in total employment has fallen, from around 44% in 1995 to 35% in While food crop production is based on small family farms, large commercial farms specialise in perennial crops, in particular palm oil. Palm oil and rubber account for around 60% of total agro-food exports and contribute to a significant surplus in Indonesia s agro-food trade. Indonesia has achieved significant progress in poverty eradication and food security. However, these issues remain important with around 11% of the population continuing to live below the nationally-defined poverty line and around 43% living on less than USD 2 at PPP/person/day. The prevalence of undernourishment was 8.7% of the population in , half of what it was only a decade ago. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Indonesia International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 3.4% Population (million) % 7.2% Land area (thousand km 2 ) % 2.4% Agricultural area (AA) (thousand ha) % 2.1% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) % 0% 100% 200% 300% Average of all countries analysed Share of arable land in AA (% ) Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en 387% * 104

105 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 261. Total factor productivity (TFP) growth is the main component of agricultural output growth in Indonesia. TFP growth showed a marked increase in the recent decade and averaged 2.6% between 2003 and 2012, well above the world average. Output growth averaged 4.5%, due to growth of TFP in combination with increased use of primary production factors and intermediate input. Natural resources and the environment are under strong pressure, partly due to the expansion of agricultural land leading to large-scale deforestation and soil erosion. The country is scarce in agricultural land, but relatively abundant in water resources. Agriculture s share in energy use has declined and remains well below the OECD average. Figure Composition of agricultural output growth 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 2.6% 1.0% 0.7% Indonesia 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Indonesia Imports Exports Primary for consumption Primary for industry Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Indonesia Energy consumption n.a. n.a. n.a. GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 0.56% 2.58% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator International comparison % Deviation from OECD average 1-100% 0% 100% 200% 300% * 105

106 Development of support to agriculture 262. For Indonesia, the level of support provided to agriculture is highly dependent on movements in world prices as most support is provided through market price support as trade barriers and price regulation isolate domestic prices from world price developments. The other main category of support to agriculture is through input subsidies on fertiliser and seeds. The level of support has grown over time and in recent years the increasing trend has accelerated. For Indonesia, due to agriculture's large share of economic activity, total support as a percentage of GDP is high in it exceeded four times the OECD average. As such, the burden on the economy due to the support provided to agriculture is relatively high and growing. PSE as % of receipts (%PSE) Indonesia has continued to increase support to agriculture, which is now 10 percentage points above the OECD average. The level of support fell in 2011, but has since increased by 13 percentage points, largely due to an increase in domestic prices relative to those on international markets % 25% Potentially most distorting support as % of PSE Support is provided almost exclusively through market price support and variable input subsidies, both considered as potentially the most production and trade distorting policies not calculated % Ratio of producer price to border price Producer Nominal Protection Coefficient On average, prices received by farmers were 32% higher than those observed on the world markets in Poultry, rice, maize and sugar show the highest NPCs TSE as % of GDP TSE has been increasing, reaching 4% of GDP in compared to the OECD average at 0.7%. GSSE share in TSE remained low at just 5.2% in % % Decomposition of change in PSE, 2014 to % PSE +24.8% MPS +2.5% BUDGETARY PAYMENTS Price Gap Quantity +22.5% +2.2% Much higher domestic prices compared to those on international markets were the key factor leading to increase in PSE in An increase in fertiliser subsidies contributed to the slight increase of budgetary payments. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Maize Rice Soybeans Palm oil Sugar Milk Beef and veal Pig meat Poultry Eggs Bananas Cassava Cocoa beans Coffee Rubber -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Producer Single Commodity Transfers were 92% of the PSE in SCT is very uneven across commodities, and some are taxed. The share of the SCT in commodity receipts is highest for sugar, poultry, rice and maize. 106

107 Description of policy developments Main policy instruments 263. Indonesia s agricultural policy is shaped by the Food Law of 2012 and its set of core objectives. The food law sets out the principles of food sovereignty (kedaulatan pangan) and food self-reliance (kemandirian pangan) as the dominate approaches to food security. The law also provides for the creation of a new food-security government institution with the task to execute the Government s orders with regards to production, procurement, storing and distribution of staple food and other food that has been determined by the government. This institution, still under consideration, is to report directly to the President and is due to be formed at the latest three years after the endorsement of the law (MoA, 2015). The objectives underlying Indonesian agricultural policy relate to: achieving self-sufficiency in the production of selected staple-food commodities (rice, maize, soybeans, sugar and beef) to assure food security; ensuring food prices are affordable for consumers and accessible across the archipelago; diversifying production and consumption away from carbohydrates (rice and wheat) towards animal-based products, fruits and vegetables, particularly root vegetables; raising the competitiveness of agricultural production and value-added processing; and, improving the welfare of farmers through higher incomes as way to reduce the level of rural poverty (OECD, 2012) Indonesia s policy objectives are pursued through both domestic and trade policy measures. Domestic policy measures include the use of minimum purchase prices for rice and sugar, substantial budgetary allocations for inputs, and payments for the provision of services to agriculture generally, in particular for irrigation; research and development; and marketing and promotion. A wide range of input subsidies on fertilisers, seeds and credit are used to support agricultural producers. For consumers, RASKIN, a targeted rice for the poor programme, is used to distribute rice at low prices to poor households across the country. The RASKIN programme, and its required distribution system, has provided the Government with the flexibility to raise the minimum prices received by rice producers while trying to ameliorate some of the price impact on poor consumers. This, however, has come at the cost of increasing budgetary expenditure to finance the programme. A public corporation, BULOG (the Indonesian National Logistic Agency), manages the programme and is required to purchase rice at minimum guaranteed prices set by the Government and to distribute some of this rice to consumers through RASKIN. It also has the responsibility of undertaking market operations aimed at stabilising domestic rice (and other commodity) prices and to manage the Government rice reserve (OECD, 2012) Trade policy measures include both tariff and non-tariff measures. The food law sets out the principles that underpin food trade. It contains provisions restricting staple food exports and imports such that state food export can only be implemented after fulfilling National Food Reserve and staple food consumption necessity and food import can only be implemented if domestic food production is not sufficient or cannot be produced domestically (Articles 34 and 36). The average applied MFN import tariff on agro-food products, excluding alcoholic beverages and spirits, is low at just over 5% in Rice and sugar are covered by specific tariffs. Import monopolies, licensing requirements and export restrictions on agricultural products were removed in However, in the 2000s quantitative import restrictions and licensing were reintroduced, notably for rice, sugar and beef. Import requirements imposed for food safety, SPS and cultural reasons are becoming more stringent. A variable export tax regime was introduced on crude palm oil and derived products, and more recently on cocoa (OECD, 2012) Since 2008, companies must be approved by the Ministry of Trade as registered importers to import a range of processed products manufactured from meat, cereal, sugar and cocoa. Similar restrictions were placed on animals and animal products in In line with the Ministry of Trade regulation on the Import and Export of Animals and Animal Products issued in September 2011, imports of these products 107

108 can only be done by a registered importer and can only be carried out if the domestic production and supply are not sufficient to meet consumer demand at an affordable price level Indonesia is a member of the Association of Southeast Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC), and World Trade Organisation (WTO). It participates in trade liberalisation between ASEAN members and their major trading partners in the region, including China, Japan, India, Korea, Australia and New Zealand. The agreement with Australia and New Zealand entered into force for Indonesia in January Also in 2012, Indonesia signed a bilateral Preferential Trade Agreement with Pakistan. The ASEAN economies hope to complete the formation of the ASEAN Economic Community. This is intended to develop: a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region fully integrated into the global economy (ASEAN Secretariat, 2015). Domestic policy developments in During , the Government of Indonesia has maintained its commitment and continued its efforts to achieve self-sufficiency. The Government has targets for five key staples rice, maize, soybeans, sugar and beef. The timeframe for achieving self-sufficiency targets are the end of 2017 for rice, maize and soybeans and the end of 2019 for beef and sugar. Along with the five key staples, policy efforts have been introduced to promote production of other strategic commodities such as chili, shallot, potato, and cocoa. Many of the programmes and developments to achieve this in represent a continuation of the programmes of Minimum purchase prices have been maintained for several commodities. Producers of sugar and soybeans benefit from minimum purchase prices, set for soybeans by BULOG (beginning in 2013) and for sugar cane by millers and traders. For sugar, in 2015 the minimum sugar price was increased to IDR 8 900/kg (USD 665/tonne) from at IDR 8 100/kg (USD 605/tonne) (MoA, 2016). For soybeans, regulations were put in place in 2013 for purchases by BULOG. Minimum prices were set at IDR 7 700/kg (USD 575/tonne) in 2015, up from at IDR 7 000/kg (USD 523/tonne) (MoA, 2016) For rice, BULOG maintains its market operations and purchasing functions. However, due to the effects of trade barriers associated with Indonesia s self-sufficiency policies, domestic rice prices have been consistently high compared with international prices. Despite this, the Government set official purchasing prices in 2015 at IDR 4 650/kg (USD 347/tonne) for paddy rice and IDR 7 300/kg (USD 545/tonne) for milled rice. The market price support schemes for rice remain the most important contributor to the longer run significant increases in the level of support in Indonesia, as measured by PSEs, explaining close to 40% of the total PSE in this country in To protect poor consumers, BULOG has continued to distribute rice within the RASKIN system. In 2015, this entailed large budgetary transfers to support the system of close to IDR 21 trillion (USD 1.7 billion), up from close to IDR 19 trillion spent in 2014 (USD 1.4 billion). However, recent OECD analysis has brought into question the effectiveness of this programme in improving food security as measured by rates of undernourishment and recommended a shift towards cash transfers or food vouchers (OECD, 2015) Government investment in irrigation infrastructure continued to grow in Supported through savings from fuel subsidies, the Government of Indonesia has continued its push to improve the country's irrigation infrastructure. Much of this is targeted towards rice production. In 2015, just under IDR 15 trillion was spent on improving hydrological infrastructure (USD 1.1 billion). The investments in infrastructure are in addition to the current exemptions in place where farmers are not charged for the cost 108

109 of delivering water from the source to the tertiary system via primary and secondary canals. In 2015, the budget for on farm irrigation infrastructure was IDR 4.3 trillion (USD 321 million) (MoA, 2015) In , subsidies for other inputs and fertilisers have been maintained. While a number of increases were announced in (mostly related to rice), expenditures on seed subsidises for coffee, soybeans and sugarcane increased significantly in (MoA, 2016). Overall, fertiliser subsidies remain by far the most important programme through which the Government provides budgetary support to agriculture. This support has increased significantly in recent years due to some redirection of funds formally spent on fuel subsidies. In 2015, the value of the subsidy was IDR 30 trillion (USD 2.2 billion), almost doubling from two years earlier in 2013 when it was IDR 17.6 trillion (USD 1.3 billion). In total, fertiliser subsidies account for 44% of total budgetary expenditures provided to support agriculture in 2015 (both on-farm and agriculture as a whole as measured by the GSSE). For palm oil, in 2015 the Government announced plans to increase the biofuels mandate to blend 20% palm biodiesel, up from 15%. Trade policy developments in Indonesia restricts the importation of strategic commodities (those associated with selfsufficiency targets) and also imposes taxes on some of its major exports such as for crude palm oil and cocoa. For palm oil, in the face of falling international prices Indonesia reduced its export tax from 15% in 2013 to 9%. Export taxes have been used intermittently and have remained below the 15% mark since, with a tax of close to 10% applied in As part of the Government s policy on approach for soybeans (incentivising domestic production and price stabilisation for consumers), in 2013 a number of steps were made to regulate the importation of soybeans. The importation of soybeans can only be done by BULOG, other state owned enterprises, cooperatives or private sectors participating in the programme of fixed wholesale selling prices Indonesia has maintained its quota arrangements for the importation of beef as part of its selfsufficiency targets for this commodity. A quota is set separately for live cattle and boxed beef and is based on the estimated shortfall between domestic supply and demand. For live cattle, import quotas are released quarterly. During 2015 quota announcements changed significantly between quarters leading to domestic price fluctuations. After initial quota tightening, quotas were relaxed in the second half of 2015 to ease pressure on domestic beef prices To secure sufficient stocks of rice, including for the distribution through RASKIN, in September 2012 BULOG signed a memorandum of understanding (MOU) to import 1.5 million tonnes of rice annually from Viet Nam, until 2017 if needed. Further MOUs have been signed with Thailand, Laos, Cambodia and Myanmar Import requirements for food safety, quarantine, and standards and labelling purposes, for a range of products including horticultural and animal products, including halal certification, are becoming more stringent. Processed food imports require both product registration and import approval from the Ministry of Health. Similarly, imports of animal based products must have MoA import approval, be accompanied by a halal certificate and derive from a processing facility that has been inspected by the MoA. In 2015, some minor changes were implemented to the horticultural import licencing regime, but the new arrangements maintained the main overall licensing requirements of the previous regime. Overall, the combination of the range of requirements, uneven enforcement and poor transparency over changing rules is adding to trade costs (GAIN, ID1455) However, despite some moves towards isolating producers in the recent past, there are signs that Indonesia is considering moves toward more open trade policy regime. Currently, Indonesia is intensifying 109

110 the process of deepening the Economic Partnership Agreement with the EU signed in The Government is also actively considering joining the Trans Pacific Partnership (TPP). References ASEAN Secretariat (2015), ASEAN Economic Community, GAIN ID1455 (2014), Exporter Guide Update, USDA FAS, 30 December. OECD (2015), Managing Food Insecurity Risk: Analytical Framework and Application to Indonesia, OECD Publishing, Paris, 110

111 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 10. ISRAEL 32 Support to agriculture 280. In less than 20 years producer support in Israel has been halved, and is currently seven percentage points below the OECD average (Figure 2.10). Potentially most distorting support still dominates and represents 86% of support provided to producers. Some commodities continue to be subject to price controls. As domestic prices have not come down to the same degree as international prices in recent years the price gap with international markets widened and producer support rose. Total support to agriculture (TSE) was 0.3% of GDP in Direct support to producers (PSE) accounts for 9.7% of the TSE and this support is composed predominantly of payments based on output (including MPS) and input use. The share of the General Services Support Estimate (GSSE) in total support has declined but payments financing the Agricultural Knowledge and Innovation System have increased over time and now represent more than half of GSSE expenditure in recent years While the level of price distortion for all products has fallen over the long term (as measured by the NPC), prices of selected products continue to be regulated by the government and trade barriers applied at the border remain high. During the last two decades, the share of MPS in total support has increased from 56% to 60%. However, the increase in MPS was offset by a reduction in payments based on input, keeping the share of potentially most distorting support unchanged over the period. Figure Israel: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Panel B. Producer support estimate as % of gross farm receipts (%PSE), Producer Support Estimate General Services Support Estimate Million ILS Knowledge Inspection and control Infrastructure Other % Israel OECD MPS, outputs and inputs Other payments requiring production Other Million ILS Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. 111

112 Main policy changes 282. Due to the dissolution of the Israeli Parliament in December 2014, the state budget was not approved until the 4 th quarter of 2015 and most reforms announced in the previous fiscal year were kept on hold for the major part of this year. Despite this, there were some changes over the period. In early 2015, two laws that are expected to increase competition among both wholesalers and retailers came in force. The Israeli government also continued its efforts to reduce support to agriculture by increasing the target price of water for agricultural use and by reducing guaranteed prices for a number of commodities. However, for some products guaranteed prices were reduced by less than the fall in international prices over the same period. Thus, the positive price differential for these products increased considerably. This is the dominant factor behind the overall rise in support for Israeli agriculture in In addition, there was an increase in subsidies for insurance schemes for farmers following the decision to extend the eligibility criteria for these programs. In 2014 the Israeli government announced its commitment to gradually increase duty-free quotas on a range of dairy products. In anticipation of the decision to increase import quotas, compensatory measures for producers were proposed in June Assessment and recommendations Since 1995, Israel has reduced support to agriculture as a result of domestic policy reforms and lower border protection resulting from bilateral trade liberalisation agreements. Recent world price declines have led to an increase in support in While the level of support to agriculture has fallen over the long term, its composition remains trade- and production distorting. This mostly reflects the continued high share of support to farm inputs and high border protection for agricultural commodities, which pushes domestic prices above international levels. Transfers to farmers from consumers through market price support policies, sustained by a complex system of border protection measures should further be reduced. There is a wide range of policy reforms that could be undertaken to improve the efficiency of the Israeli agricultural sector and its international competitiveness while reducing the cost to taxpayers and consumers. In addition to structural reforms, such as diminishing administrative burdens on agricultural land market transactions, Israel could implement and extend the reforms announced in 2012 aimed at reducing and simplifying customs duties. The environmental performance of agriculture has been mixed and can be further improved, in particular with regard to water management. The recent implementation of a multiyear water quota for the farming sector combined with the increase in fees for fresh water should contribute to improving water use efficiency. However, the level of water price support remained high in 2015 and the reforms may prove to be insufficient to achieve the objectives agreed between the government and producers to fully recover average water supply costs. 112

113 Table Israel: Estimates of support to agriculture 113

114 Contextual information 283. Israel s economy is relatively small but has been growing rapidly over the last two decades. GDP per capita is slightly above the average of countries analysed. The share of agriculture in total employment and in domestic product has fallen to around 2%. Israel is unique amongst developed countries in that land and water resources are nearly all state-owned. Cooperative communities, principally the kibbutz and moshav, dominate agricultural production, accounting for about 80% of agricultural output. The agro-food sector is strongly integrated with international markets. Exports are dominated by fruit and vegetables and imports by land-intensive cereals and oilseeds, and selected other commodities such as beef and sugar. The negative balance of trade in agro-food products has increased in recent years. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Israel International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.3% Population (million) % 0.2% Land area (thousand km 2 ) % 0.03% Agricultural area (AA) (thousand ha) % 0.02% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en 582% 774% * 114

115 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 284. Israeli agriculture can be considered highly productive. The 2.6% annual growth rate of total factor productivity (TFP) in agriculture over the period of is above the world average. The long-term increase in productivity is the result of a number of factors, including advances in technology due to research and development and the high managerial skills of Israeli farmers. Agriculture s contribution to the economy is small but its impact on the environment is significant. It still accounts for over 56% of annual water consumption and half of arable land is irrigated. With a water stress indicator five times higher than the OECD average, the use of water resources is the dominant environmental issue for the sector. Arable land is another scarce factor with an average availability of just 0.04 hectare per capita. Figure Composition of agricultural output growth average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% 2.6% -0.7% -0.4% Israel 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Exports % Source: UN Comtrade Database Imports Primary for consumption Primary for industry Processed for consumption Processed for industry Figure Environmental indicators for agriculture % OECD Israel Energy consumption n.a. Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators GHG emissions Water use Water stress indicator Share of agriculture in total Table Productivity and environmental indicators TFP annual growth rate (% ) 2.51% 2.56% 1.58% 1.74% Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Israel International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en World OECD average 1140% 580% 400% * 115

116 Development of support to agriculture 285. Although Israel has reduced support to agriculture most production and trade distorting forms of support continue to dominate. The level of price distortions, as measured by the NPC, has declined in the long term, but prices for selected commodities remain regulated by the government and their adjustments are either delayed or delinked from changes of prices on international markets. PSE as % of receipts (%PSE) In the long term Israel reduced support to agriculture which is now around half of the OECD average. After a sharp decrease following the peak reached in 2008, the PSE increased in both 2014 and Support rose sharply between 2014 and 2015 primarily due to the increase in the gap between domestic and international prices for milk and meat products % 21% Potentially most distorting support as % of PSE While the level of support has fallen, the share of the potentially most distorting support (based on commodity output and variable input use) still represents 86% of the total % % Ratio of producer price to border price Producer Nominal Protection Coefficient Overall, prices received by farmers were on average 8% higher than those observed on the world market over the period TSE as % of GDP Total support was 0.3% of GDP in , compared to the OECD average of around 0.7%, and the expenditure on general services represented 17.4% of the total support % % +34.8% PSE Decomposition of change in PSE, 2014 to % MPS +4.8% BUDGETARY PAYMENTS Price Gap Quantity +31.9% -1.9% The level of support increased in 2015 due to the substantial increase of the gap between domestic and border prices (MPS). This was a combination of an increase of domestic prices and reduction of world prices. The market price differential increased for many products, particularly for milk and meat products. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Milk Beef and veal Poultry Sheep meat Eggs Apples Bananas Fruits and vegetables Cotton -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The Single Commodity Transfers (SCT) represented 79% of the total PSE. The share of the SCT in the commodity gross farm receipts is lowest for fruit and vegetables, and the highest for milk and bananas. 116

117 Description of policy developments Main policy instruments 286. In 2014, a new Rural Development Plan ( ) was adopted to encourage the diversification of employment in rural areas and to facilitate the retirement of non-competitive farmers from the market. It includes measures to support for small business in rural areas such as wineries, dairies and tourism Over the past thirty years, Israel has implemented a number of reforms in such areas as the provision of subsidies, central planning of agricultural industries, and the allocation of production quotas, price controls and import protection. The government nevertheless continues to be involved in the allocation of key factors of production such as land, water and foreign workers. Land and water resources are almost entirely state-owned. Land is allocated to farmers for a low, nominal fee and cannot be the subject of market transactions. Water is allocated to farmers through a three-year quota system. Farmers are given access to water at lower rates compared to other users and benefit from a concession on the water extraction levy. The government also applies a yearly quota of foreign workers with permits to work in agriculture. Both the overall quota and the allocation of workers to individual farmers are strictly regulated Several commodities continue to benefit from guaranteed prices and production quotas. Guaranteed prices for milk and eggs are based on the average cost of production and while they are updated regularly, they diverge quite considerably from the level and evolution of prices on international markets. Minimum prices are also guaranteed for wheat, based on the Kansas market price, adjusted for quality and transportation costs. On the other hand, consumer price controls are applied to several basic food products, mainly dairy products, eggs and bread Egg and poultry producers in peripheral areas benefit from direct payments. Income support measures are implemented for wheat and barley producers Support to investments is provided by capital grants. Farmers who participate in the investment support scheme are also entitled to income tax exemptions and accelerated depreciation. Since 2009, an investment support programme has been implemented to partly replace foreign workers in the agricultural sector Insurance schemes for farmers are subsidised. The government intends to increase state participation in subsidising premiums and to extend the coverage through the inclusion of new crops. The rate of support to assurance premium is at 80% in the case of the multi-risk insurance schemes and at 35% in the case of the insurance schemes against natural hazards Following the implementation of the Uruguay Round Agreement on Agriculture (URAA), Israel now maintains a more transparent and open trade regime. However, high border tariff protection on agrifood products remains a key tool in supporting agricultural producers. Under the URAA, Israel established tariff rate quotas (TRQs) for wheat, fats and oils, walnuts, prunes, maize, oranges and other citrus juices, beef and sheep meat and various dairy products. Moreover, all of Israel s preferential trade agreements (apart from that with the European Free Trade Association, EFTA) include tariff-quota commitments for agricultural products. In total, Israel implements more than 100 Most Favoured Nation (MFN) and preferential TRQs (WTO, 2012) Despite certain reforms undertaken in 2014, Israel s tariff profile for agricultural products remains highly uneven, with very high sometimes prohibitive tariffs for such goods as dairy products, fresh beef, eggs and certain fruits and vegetables, and low, sometimes duty-free, tariffs for other 117

118 commodities such as coarse grains, sugar, oilseed and frozen beef. The tariff system on agriculture remains complicated, involving a large number of non-ad-valorem tariffs (specific, compound or mixed). The simple average MFN tariff applied for agricultural products (WTO definition) was 13.2% in 2013 compared with an average for non-agricultural products of 3.2%. However, some 45% of agri-food imports enter Israel duty-free, mostly through MFN duty-free access and under preferential agreements (the most important ones are with the EU and the US) (WTO, 2014). With the exception of beef, poultry (including turkeys) and mutton and products thereof, there is no legal requirement for imported food and agricultural products to be kosher, although imported, non-kosher agro-food products are rarely accepted by local marketing channels Budgetary allocations for R&D have regularly increased and have accounted for about 20% of the total agriculture-related budget in recent years. This has allowed Israel to become a world leader in agricultural technology, particularly in farming in arid and desert conditions, and to build its comparative advantage in agriculture on knowledge and technological progress (OECD, 2010). Domestic policy developments in Since 2012, the government has implemented a number of initiatives to address the issue of high food prices in response to the social protests of In 2015 and early 2016, reforms have continued, but implementation has been hampered by the dissolution of the Knesset (Israeli Parliament) in December In May 2015 a new government was formed but the state budget was not approved until the 4 th quarter of Due to the late approval, most reforms announced in the previous fiscal year were kept on hold for the major part of In 2014, the Economic Committee of the Knesset voted an amendment to the Israel Antitrust Law in order to limit the exemption of the agricultural sector from antitrust regulation. Private wholesalers of agricultural products, except cooperatives, will now be subject to antitrust laws thereby potentially enhancing competition among agro-food wholesalers. To spur further competition, the Committee planned to allocate ILS 10 million (USD 2.8 million) over two years to encourage growers to create new cooperatives or to join existing ones. In March 2014, the Knesset also voted a law to increase competition in the food sector. This bill regulates the relationship between retailers and suppliers and is expected to increase competition across retailers at specific locations. It also provides for greater price transparency. Both laws came fully in force during the first quarter of The average guaranteed prices decreased for a number of commodities in 2015 by an average of 6% for raw milk; 2% for eggs; and 67% for wheat. However, the fall of producer prices for milk was smaller than the reduction in international dairy product prices over the same period. Thus, the positive price differential for milk increased considerably. This is the dominant factor behind the overall rise in support for the Israeli agriculture in Under the Galilee Law, egg quota holders continued to benefit from direct payments which amounted to ILS 53 million (USD 13.6 million) in 2015 approximately the same level as in the previous year. For beef producer, as compensation for the decision to increase the import quota of fresh beef in 2014 (see below), the government provided direct payments and promotion support farmers. In 2015, this support amounted ILS 21 million (USD 5.4 million) The government continued to pursue the initiative launched in 2013 to facilitate the retirement of small and medium-sized dairy farmers from the market. In 2013 around 10% of small farmers left the industry with their milk quotas being returned to the state and subsequently reallocated to other small farmers to improve their efficiency. In 2015, this initiative received funding totalling ILS 17 million (USD 4.37 million). 118

119 300. To enable farmers to adjust to the 2006 agreement between the government and farmers to better reflect average water supply costs in water charges, the government allocated ILS million (USD 36 million) in 2015 to support farmers investing in water-saving and irrigation technologies. This support is regarded as a compensation for increases in fresh water prices for some farmers following the unification of the fresh water tariffs applied in early The target supply price for agricultural use of fresh water in 2016 was increased to ILS 2.52 per cubic meter an increase of 6.8% compared with To improve water supply certainty for the sector, a three-year quota of fresh water was implemented in the agricultural sector in This replaced the previous annual quotas. The Water Authority Council stated that the total allocation of fresh water to agriculture for the period would be 1.8 billion cubic meters, on average 0.6 billion cubic metres per year, about the same level as in the past In addition to the allocation of fresh water, farmers also benefit from a quota of marginal water. This consists of recycled effluents, brackish water and surface water. In 2015, the quota for marginal water was 268 million cubic metres, 7% lower than in An amendment to the water law was proposed at the end of 2015 to modify the extraction levies imposed on all water consumers. The extraction levies are used to reflect the scarcity value of water. To date, the levy is lower for farmers than for other consumers and varies regionally. The proposition is to standardise the levy across all users and regions to create a single national fixed price levy In 2015, the quota for foreign workers in agriculture was set at persons, the same level as in However, the quota remains significantly lower than the number of workers requested by farmers. As compensation, the government has continued to encourage farmers to replace foreign labour with machinery by providing investment support. In 2015, this support amounted to ILS 8 million (USD 2 million) The government continues to cover 80% of the insurance premium paid for multi-risk insurance schemes and 35% of premiums for insurance products that only insure against natural hazards. In 2014, the decision was taken to change the eligibility criteria of multi-risk insurance schemes to include beekeeping and growers affected by the eradication of animals with Newcastle disease. The expanded eligibility of insurance coverage was fully implemented in Building on this, the government is looking to promote insurance against salmonella disease (which affects poultry). The budgetary expenditure for this programme would be ILS 6.4 million (80% of the total insurance premium). Trade policy developments in In 2014, in line with the decision taken by the government in 2012 to reduce tariffs on certain food products, the Finance Committee of the Israeli Knesset approved changes to Israel's tariff-rate-quota on fresh beef. In 2015, the decision to increase the quota from to tonnes was fully implemented with the quota expected to grow gradually to reach tonnes in In addition, imports within the quota are now duty free, compared with the 100% tariff previously applied. However, this measure is expected to have limited impact as Israel imports almost exclusively frozen beef. Alongside these reforms, custom duties on imports of live cattle supplied to feedlots (weight above 250 kg/head) have been abolished, although this decision is expected to be re-examined in In March 2014, the Israeli government outlined its commitment to increase gradually duty-free quotas on a range of dairy products including cheese, butter, cream and yogurt. In anticipation to the decision to increase import quotas, compensatory measures for producers were proposed in June In 2015, negotiations to modernize the Canada-Israel Free Trade Agreement (CIFTA), including further reductions and the elimination of tariffs on certain agricultural and fish/seafood products 119

120 were concluded. This agreement is expected to improve Israel s export of agricultural technologies and services. In addition, in November, the government concluded negotiations on an FTA with Panama that is expected to promote exports of agricultural products as well as Israel s agricultural technologies and services. The negotiations on a possible FTA with China and the Eurasian Economic Union, launched in 2014, continued and initial negotiations with the Ukraine took place. Finally, the ratification of the FTA with Colombia, signed in September 2013, is not envisaged before 2016 as Colombia has not yet started the ratification process. References OECD (2010), OECD Review of Agricultural Policies: Israel 2010, OECD Publishing, Paris. WTO (2014), World Tariff Profiles 2014, published by WTO, ITC, UNCTAD. WTO (2012), Trade Policy Review. Report by the Secretariat: Israel, WTO, Geneva, 25 September. 120

121 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 11. JAPAN Support to agriculture 309. Japan has gradually reduced its support to agriculture but the change is relatively moderate. Support remains high and averaged 48% of gross farm receipts in almost three times the OECD average. Market price support (MPS) remains the main element of producer support and is sustained by trade barriers, in particular for rice. The total support estimate to agriculture (TSE) was around 1% of GDP in the most recent years, mostly composed of support to farmers (PSE). Less than one sixth of total support is devoted to expenditures on General Services Support (GSSE) for the sector as a whole. Around 80% of the GSSE are payments for the development and maintenance of infrastructure. Figure Japan: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Billion JPY Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Billion JPY Panel B. Producer support estimate as % of gross farm receipts (%PSE), % Japan OECD Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), Main policy changes 310. Japan adopted a new Basic Plan on Food Agriculture and Rural Areas in 2015, which lays out the strategic policy goals and plans for the next 10 years. The plan sets food self-sufficiency targets for the year 2025 on a calorie supply basis (45%) and on a production value basis (73%). Those lie above current ratios of 39% and 64% respectively. Developing the economic potential of agriculture and food processing is a main orientation of the plan and it stresses encouraging exports, innovation, and farmland protection. It also aims at instituting a voluntary scheme where farmers and the government would work jointly towards better balancing of demand and supply of rice and which would replace the current rice supply management system. 121

122 311. The area-based income support payment for upland crops, which was introduced in 2007, was recoupled with current area in 2015, while it was based on past area before Japan and 11 other Pacific Rim nations concluded the Trans-Pacific Partnership (TPP) negotiations in late Under the agreement, market access of agricultural products, including for rice, pork, dairy, beef, wheat, and sugar, will be improved. Assessment and recommendations Japan began implementing policy reforms based on the agricultural reform plan announced in These reforms present a mixed picture. While phasing out of the administrative allocation of rice production by the 2018 crop year is an important step to give farmers more freedom to respond to market signals, the remaining incentives to produce diversion crops, such as rice for feed and manufacturing, through commodity specific payments, will keep the price of rice high. Further efforts are needed to gradually reduce those measures and narrow the gap between domestic and international prices of rice, and to reduce production cost by facilitating farm size growth. Japan has made commitments to reduce border measures of some commodities under the TPP framework. Once implemented, this will be a move towards more market-orientation and has a potential to strengthen the competitiveness of the sector. However, Japan proposed various domestic measures to cushion the adverse effects of TPP on domestic producers such as revision of the income stabilisation programme for livestock producers and the purchase of rice for stock. These measures should be transitory and should be operated to further promote structural change and productivity growth of the sector. Japan has made significant efforts to promote land consolidation to business farmers certified by authorities. The establishment of the farmland bank, various types of supports for which only business farms are eligible, and the payment for young farmers could contribute structural change and productivity growth, but other factors that hamper the growth of efficient farms still remain in place. Land-use regulation should be made more transparent, with a more predictable framework for conversion from farmland to non-farmland use. Tax concessions on idled land should be reduced, so as to encourage its productive use. Japan s current agricultural innovation system is characterised by a traditional top-down approach, where scientists in the public sector develop new technologies that are disseminated by extension officers to farmers. The agricultural innovation system should evolve to meet the needs of business farmers in a more inclusive, interactive and participatory approach, including reforms to public R&D funding, extension services and agricultural education. 122

123 Table Japan: Estimates of support to agriculture 123

124 Contextual information 313. Agriculture constitutes a relatively small share in the Japanese economy (1% of GDP and 4% of employment), and production has decreased by nearly 30% and the area of abandoned farmland has doubled over the past two decades. In value terms, the main sources of production are livestock (35%), vegetables (27%), rice (17%), and fruits (9%). Japan is one of the largest net agro-food importers in the world: Agro-food imports represent 7.3% of total imports, while agro-food exports represent 0.5% of total exports. In turn, the food self-sufficiency ratio was below 40% on a calorie supply basis in Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Japan International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 6% Population (million) % 3.6% Land area (thousand km 2 ) % 0.5% Agricultural area (AA) (thousand ha) % 0.2% -100% 0% 100% 200% 300% Average of all countries analysed 1 Population density (inhabitants/km 2 754% ) % GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Average of all countries analysed 1 Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) * Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. Sources: OECD statistical databases, UN Comtrade, World Development Indicators and national data. doi: /agr-pcse-data-en 124

125 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 314. Japan is a land scarce country with high population density, where the farm structure is characterised by very small family farms and the average age of farmers is currently at 67 years. The average farm size has increased in the last decade from 1.9ha in 2005 to 2.5ha in With labour leaving the sector, production levels were sustained by a relatively high rate of growth of total factor productivity. Japan is a water-rich country and about a half of farmland is irrigated paddy field used for rice production (the rest are dryland for non-rice production). The main source of Green House Gas (GHG) emissions from agriculture is methane (CH 4 ) emitted from paddy fields and livestock. With shrinking production, GHG emissions in 2011 have decreased by about one-third since 1990 (MAFF, 2013). Figure Composition of agricultural output growth 4% 3% 2% 1% 0% -1% -2% -3% -4% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 2.9% -0.5% -2.8% Japan 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Exports % Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Japan Imports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en 17 Energy consumption 41 Processed for consumption Processed for industry % OECD Japan GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 1.55% 2.87% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% * 125

126 Development of support to agriculture 315. Japan has gradually reduced its support to agriculture, though the change is relatively moderate and support remains high. With about half of gross producer receipts coming from producer support (PSE), and the %PSE is almost three times the OECD average. One of the main components of PSE is the market price support (MPS) sustained by trade barriers, in particular for rice. During the MPS has fallen, mainly due to a narrowing of the gap between domestic and import rice prices. Less than one-sixth of total support is devoted to General Services (GSSE), and the main expenditures are on payments for the development and maintenance of infrastructure. The total support estimate to agriculture (TSE) was around 1% of GDP in the most recent years, and is also on a decreasing trend. PSE as % of receipts (%PSE) Support to producers (%PSE) decreased gradually and consistently overtime, but overall support remains high compared to the OECD average % 58% 64% Potentially most distorting support as % of PSE The potentially most distorting support (based on output and variable input use without input constraints) still represents 84% of the PSE. Market price support continues to be the main element of that support % 95% 95% Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers were around 2.65 times higher than those in world markets in , but this ratio was reduced to 1.79 in TSE as % of GDP Total support to agriculture was 1.1% of GDP in and the support to general services (GSSE) was 16.5% of total support (TSE) in % 2.3% % Decomposition of change in PSE, 2014 to % PSE -12.5% MPS +0.6% BUDGETARY PAYMENTS Price Gap Quantity -12.0% -0.5% The level of support decreased by 11.9% in 2015 mainly due to the decrease in the gap between domestic and border prices, in particular for rice. This is explained by slightly lower domestic prices in combination with rising import prices and a depreciating JPY. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Rice Soybeans Sugar Milk Beef and veal Pig meat Poultry Eggs Apples Chinese cabbage Cucumber Grapes Mandarin Pears Spinaches Strawberries Welsh Onion 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The Single Commodity Transfers (SCT) represented 86% of the total PSE in The share of SCT in the commodity gross farm receipt was the highest for rice, Chinese cabbage and welsh onion. 126

127 Description of policy developments Main policy instruments 316. Market price support resulting from tariffs and tariff rate quotas, and payments based on output account for the majority of PSE in Japan (about 80% of PSE in 2015). Tariff-rate quota systems are applied to major commodities such as rice, wheat, barley and dairy products. Administered prices are applied to pig meat, beef and calves. The Crop Production Bureau within the Ministry of Agriculture, Forestry and Fisheries is responsible for importing rice under Japan s WTO Agreement on Agriculture (AoA) minimum-access commitment. The rice supply management system contributes to a higher domestic rice price. The programme limits the supply of rice by allocating a production target to rice farmers. The programme has been in place for 40 years, but reforms are set in motion that aim to replace the current system by a voluntary scheme that enables farmers to plan their production based on the market demand by around The Governments support this scheme by providing detailed market information on rice such as price, supply, demand, and stocks Various kinds of income support programmes are implemented for rice and upland crops. The income support payment for rice offers JPY (USD 62) per 0.1 hectare to those who meet the rice production target. The payment is scheduled to be abolished in The income support payment for upland crops (wheat, barley, soybean, sugar beet, starch potato, buckwheat and rapeseed) consists of areaand output-based payments. The area-based payments are based on the current year s area planted, with the rate being fixed at JPY (USD 165) per 0.1 hectare for wheat, barley, soybean, sugar beet, starch potato, and rapeseed, or JPY (USD 107) for buckwheat. The output-based payments are based on the volume of sales, but the subsidy rate varies by quality and variety. For example, the subsidy rate for wheat ranges from JPY (USD 36) per 60 kg for the lowest quality to JPY (USD 53) for the highest quality, and JPY (USD 21) is additionally paid for wheat varieties suitable for noodle and bread productions The income based payment compensates farmers when the revenue is lower than a historical average. Specifically, when the total revenue of programme crops (rice, wheat, barley, soybean, sugar beet, and starch potato) falls, the programme compensates 90% of the reduction in revenue suffered. Current revenues are compared to the average revenue of the previous 5 years, with the lowest and highest revenues removed. Both current and historical revenues are calculated from regional average yield and price. The payment is paid within the fund which is contributed by farmer (25%) and the government (75%) The income support payment for upland crops and the income based payment are available for so called business farmers (Ninaite), defined as a farm management unit which is already or is aiming to be an efficient and stable farm. Three basic criteria are currently used to certify farmers as business farmers: Certified farmers and certified new farmers are those who submit the farm management plans and are approved by the authorities; and Community-based farm cooperatives are the local unit of farm households which conduct farm management collectively To recruit younger generations, Japan provides the subsidy to new young farmers during a training period (maximum two years) and the initial operation period (maximum five years). The maximum rate of JPY 1.5 million (USD ) is paid annually to eligible trainees or farmers The farmland banks (Public Corporations for Farmland Consolidation to Core Farmers through Renting and Subleasing) have been established since 2014 aiming at farmland consolidation. These banks 127

128 improve farmland condition and infrastructure if necessary, and then lease the consolidated farmland to business farmers. Subsidies are provided to land owners who lease their lands to the farmland banks Agricultural public works has long been implemented to improve rural infrastructure, such as farmland, agricultural road, and irrigation and drainage facilities. The rural community support programmes are provided to local collective activities which conserve and improve the quality of rural resources (e.g. canal maintenance). The direct payment for environmentally friendly agriculture is provided for those who reduce chemical fertilizer and chemical pesticide, and those who adopt farming practices which contribute to prevent global warming and conserve biodiversity. Direct payments to farmers in hilly and mountainous areas aim to prevent the abandonment of agricultural land and to ensure the multifunctional roles of agriculture. Domestic policy developments in The administered prices for livestock have increased in 2016 responding to the increase in imported feed costs. The floor level of price stabilization bands for pig meat and beef were JPY (USD 3 677) and JPY (USD 7 355) per tonne in Similarly, all guaranteed prices per head of calves have increased in The payment based on output for manufacturing milk has decreased by 1.6% reflecting the reduction in production cost (JPY (USD 105) per tonne) The allocation of rice production target was reduced from thousand tonnes in 2015 to thousand tonnes in 2016, based on demand projection Several changes were made to the support for rice and upland crops in First, the area-based payment of the income support payment for upland crops was recoupled with current area, while before 2014 it was based on past area. Second, the income support payment for upland crops was made eligible to certified farmers, certified new farmers, and community-based farm cooperatives (before 2014, virtually all farmers were eligible). Finally, the eligibility of the income based payment was expanded: Before 2014, it was targeted for certified farmers and community-based farm cooperatives with certain minimum farm size requirements, but the size requirement is now abolished and certified new farmers are also entitled as recipients. The requirements for community-based farm cooperatives were also loosened In April 2015, in order to maintain and demonstrate multifunctional roles of agriculture and rural areas, the Agricultural Multi-functionality Law was enforced. The law legalizes the rural community support programme, the direct payment for environmentally friendly agriculture, and the direct payments to farmers in hilly and mountainous areas In April 2016, the revised Agricultural Cooperative Law was enforced. The revised law specifies explicitly that agricultural co-ops should give maximum consideration to improve farmers income. The reform also renounces the exclusive status of the Central Union of Agricultural Co-operatives (JA-Zenchu) to audit local cooperatives The Basic Plan on Food, Agriculture and Rural Areas was revised in March 2015 (see Box ). It lays out the strategic policy goals and plans for the next 10 years. The basic plan is revised by the Cabinet every five years. The plan sets a food self-sufficiency target of 45% on calorie supply basis and 73% on production value basis by 2025, while the actual rates were reported at 39% and 64% in 2014, respectively. The Plan continues to focus support on business farmers. 128

129 Box Basic Plan for Food, Agriculture and Rural Areas 2015 The Basic Plan for Food, Agriculture and Rural Areas sets Japan's agricultural policy direction for the next 10 years. The plan is revised every five years, and the latest Basic Plan was approved by the Cabinet in March Japan s food self-sufficiency ratio in 2014 was 39% on a calorie supply basis and 64% on a production value basis. Under the new Basic Plan, the Government has set the calorie-based food self-sufficiency target for 2025 at 45%, while the target for the production value-based sufficiency ratio was set at 73%. The new Basic Plan set these targets based on an assessment that meeting them would be feasible over the plan period. The new Basic Plan also establishes a new indicator, food self-sufficiency potential, to evaluate potential food production capability. The aim of this new indicator is to promote public awareness and understanding of the current state of Japan s food security potential. The food self-sufficiency potential indicator shows how much food can be domestically produced if all farmland in Japan (including abandoned farmland and farmland planted with non-food such as flowers) were cropped to maximize food production on caloric basis under several different scenarios on food production and consumption patterns. The indicators show that the country's total required caloric intake could possibly be supplied from domestic production if most farmland was devoted to high caloric products such as potatoes. However, this would require significant change in the actual dietary patterns of Japanese citizens. Under the scenario that the current consumption levels of staples (rice, wheat, and soybeans) are to be maintained, the possible attainable caloric supply would fall far short of the required to satisfy the demands of the entire society. The Basic Plan has two overriding policy principles: turning agriculture and food industries into a growth industry (industrial policy); as well as maintaining and developing multi-functionalities of agriculture and rural areas (regional policy). Under these principles, the Basic Plan highlights the following key policies. Exports and overseas expansion of food industry: The Government will help in the promotion of food exports and the overseas expansion of food industry by sharing information on trade procedures; facilitating the acquisition of certificates (e.g. HACCP-based standards, Halal, and geographical indication); and strengthening international publicity activities on Japanese cuisine and food culture. AFFrinnovation; In order to bring more income opportunities to the rural society, the Government encourages farmers to work on Affrinnovation. AFFrinnovation means adding value to agricultural products, forest products and fishery products in an innovative way, making new combinations, or creating a value chain. Labour policy: In order to achieve more efficient and sustainable agricultural structure, the Government will provide intensive support such as subsidies, loans, and financing for business farmers ( Ninaite ) certified by local authorities. Japan also promotes transfer of farmland to business farmers, incorporation of farms, and recruitment of new farmers. Land policy: In order to reduce land fragmentation, public corporations called farmland banks rent small and scattered pieces of farmland, and lease them to business farmers in consolidated form. The Government will also support preventing farmland abandonment. Rice policy: The Government will create a situation that farmers choose their production based on the market demand without relying on production target allocated by the government, by around To achieve this goal, the Government will provide detailed market information on rice such as price, supply, demand, and stocks. Rural policy: The Government will provide direct payments for the collective actions by farmers and residents on conserving local resources and environment. It will also subsidise farmers in hilly, mountainous, and other disadvantaged areas. Rural tourism, migration from urban to rural areas, and prevention measures for agricultural damages caused by wildlife are also supported. Restoration from the Great East Japan Earthquake: The Government will continue to support restoration of farmland and agricultural facilities affected by the earthquake and tsunami in March In response to the Fukushima Nuclear accident, the Government promotes various measures to ensure food safety and to enhance transparency in information around local foods. Specifically, radiocesium reduction measures at the field level, inspections of products for radiocesium, shipment restrictions and other measures have been jointly implemented in order to allow only food products with radiocesium below standard limits to be distributed. The Government will continue to support various efforts by farmers to avoid contamination, to convey accurate information on inspection results and farmers efforts, and to negotiate with countries and regions that impose import restrictions. Agricultural co-operatives and committees: The Government will facilitate the reform of agricultural co-operatives so that they and their members can engage in more profitable activities and realise increases in farmer income. The reform of agricultural committees is also proposed. Source: MAFF,

130 Trade policy developments in The over-quota tariff-rate of rice is JPY 341 (USD 2.8) per kg, the tariff-quota for rice is tonnes (milled rice), and the maximum mark-up for rice imports is set at JPY 292 (USD 2.4) per kg. Japan s tariff-rate-quotas continued to be under-filled in 2015 for some products, including butter and butter oil, prepared whey for infant formula, skimmed milk powder for school lunches and other purposes, and ground nuts. Japan issued special safeguard measures in 2015 for some products, including condensed milk, milk and cream, butter milk, food preparations of starch, maize (corn) starch. In May 2015, Japan carried out emergency imports of tonnes of butter to meet domestic demand In 2015, the value of exports of food and agricultural products from Japan increased to a record high of JPY 745 billion (USD 6.2 billion), partly driven by a weaker JPY. Exports expanded in a wide range of agricultural products such as fruits, rice, fish and livestock products, and vegetables. By 2015, government supported institutions aiming to promote agricultural products were established for several key commodities, including rice and beef. The government has the goal of increasing food exports up to JPY 1 trillion (USD 8.3 billion) by Japan has fourteen Economic Partnership Agreements (EPAs) in force (Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei Darussalam, ASEAN, Philippines, Switzerland, Viet Nam, India, Peru, and Australia) both regional and bilateral, and signed the EPA with Mongolia in Japan and 11 other Pacific Rim nations announced the conclusion of the Trans-Pacific Partnership Agreement (TPP). The 12 countries included in the TPP Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Viet Nam together account for nearly 40% of global GDP and about one-third of all world trade. Under the agreement, market access of agricultural products, including those for sensitive products such as rice, pork, dairy, beef, wheat, and sugar, will be improved. The share of tariff lines on agriculture, forestry and fishery imports from other TPP members that would be duty free would rise from 82% once the agreement is fully implemented, allowing for a phase out period of up to 21 years. Japan maintains tariff-rate quotas (TRQ) on a number of products and while some are open for all TPP members, others are country-specific under bilateral agreements, such as rice (USA, Australia), glucose, corn and potato starch (USA), wheat and malt (Australia, Canada, USA) cheese and whey (Australia, New Zealand, USA) and inulin (Chile, USA) To cushion the expected effects on domestic markets, various measures were proposed in November 2015 (Cabinet Secretariat, 2015). For example, under the TPP the bilateral import quota for rice from the United States and Australia will reach a total of tonnes. This amount is approximately equivalent to 10% of the current total import quota or 1% of total rice consumption in Japan. The government announced plans to purchase the same amount of domestically grown rice as emergency stocks every year. The reduction of import tariffs for beef and pork would be accompanied by amendment of the income stabilization programme: the existing programme covers up to 80% of gaps between average production cost and average carcass price, and the rate of support will be changed from 80% to 90% for both sectors. Farmers premium (contribution rate) for the pork income stabilization programme will be reduced from current 50% to 25%. For sugar products, the current price adjustment scheme will be revised to cover imported sugar preparations (e.g. cocoa powder). For dairy products, the current subsidy scheme will be revised to cover more products such as fresh cream. Further, the government allocated supplementary budget in December 2015 totalling JPY 312 billion (USD 2.6 billion) in preparation for TPP. The budget includes the support for promotion of export, business farmers, enlargement of farmland plots, promotion of innovation and new technology adoption, and improvement of productivity of livestock and dairy sectors. 130

131 334. Japan has currently been engaged in seven other EPA negotiations. There are three individual bilateral EPA negotiations with Canada, Colombia, and Turkey, and four multilateral EPA negotiations such as the Japan-China-Korea FTA, the Japan-EU EPA, and the Regional Comprehensive Economic Partnership (RCEP). References Cabinet Secretariat (2015), Comprehensive policy outline on TPP ( Sogoteki na TPP kanren seisaku taiko ) (in Japanese). Ministry of Agriculture, Forestry and Fisheries (2015), Summary of the Basic Plan for Food, Agriculture and Rural Areas Food, agriculture and rural areas over the next 10 years. Ministry of Agriculture, Forestry and Fisheries (2013), FY2012 Annual Report on Food, Agriculture and Rural Areas in Japan ( Heisei 24 Nendo Shokuryo Nogyo Noson no Doko ) (in Japanese). 131

132 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 12. KAZAKHSTAN Support to agriculture 335. The level of producer support fluctuated substantially prior to 2009 and has stabilised at around 12% in more recent years. In 2015 it rose to 15% from 10% in This strong increase was mainly related to substantially higher market price support (MPS), which accounted for around 40% of producer support. Budgetary transfers to producers are mainly in the form of subsidies to farm investments. Almost three-quarters of total support to agriculture (TSE) is provided to producers individually, the rest is directed to general services and supports food processors. Million KZT Figure Kazakhstan: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate 0 Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million KZT Panel B. Producer support estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Kazakhstan OECD Main policy changes 336. A number of policy changes were implemented and approved during 2015 and early One decision was to abolish state purchases of grain as from January It was also decided to eliminate per hectare payments for priority crops, as well as a subsidy for cotton quality expertise and a seed subsidy. Changes to the land legislation allowing private ownership of agricultural land will take effect on 1 July Amendments to the Tax Law were approved to implement a five-fold increase in the land tax rate for agricultural enterprises as a measure to reduce non-cultivated agricultural land areas. A Law on Agricultural Cooperation that came into effect on 1 January 2016 facilitates the creation and operation of producer cooperatives and makes them eligible for a range of support measures. Kazakhstan s WTO accession is the major development in the trade area. The 19-year accession negotiations were closed on 22 June 2015 and the country became a WTO member on 30 November

133 Assessment and recommendations Several reforms were introduced to limit production and trade distorting support, most of them to be implemented in A broad agricultural debt restructuring has been implemented since This policy requires prudence in granting new concessions and monitoring compliance with new terms to avoid the creation of soft budget constraints which enable chronic loss-makers to continue operations. More transparent and competitive procedures to grant public support should be established to increase the effectiveness of the government support. The intended electronic system of subsidy payments would be a step in the right direction. The introduction of private ownership on agricultural land is an important step for developing a viable land market in the country, attracting long-term investment to the sector and improving land productivity. The elimination of per hectare payments for priority crops is welcome. However, making support payments and access to concessional credit conditional on compliance with regional specialisation schemes may erode the positive effect from this reform. It also may limit production diversification and therefore farm risk management capacities. A greater focus needs to be placed on enabling producers to better manage market and climaterelated risks and on generating incentives for the sustainable use of natural resources. Developing a national system of extension services and improving attractiveness of rural areas to young professionals can present more effective policies for improving farm decision-making and performance than granting support conditioned on compliance with administratively specified requirements. A number of infrastructure projects launched recently have the potential to reduce weaknesses in the transport infrastructure and improve water and land management. Investments in these areas are essential to attain the stated agricultural development goals and will need to be pursued. 133

134 Table Kazakhstan: Estimates of support to agriculture 134

135 Contextual information 337. Kazakhstan has the ninth largest land area in the world, but with 17.2 million inhabitants it is one of the least densely populated countries. The availability of arable land per inhabitant is the second highest in the world. The country is an upper middle-income economy. Economic growth slowed down gradually in recent years with GDP growth estimated to be 1.2% in Agriculture contributes around 5% of GDP and employs 18% of the population at working age. While Kazakhstan is one of the world s top wheat exporters, it is a net agro-food importer since the mid-2000s. Almost 90% of its agro-food exports are in primary commodities, mostly wheat. The farm structure is dual: large-scale, and often highly integrated operations, dominate the grain sector, while around 76% of beef and 80% of milk is produced by rural households with tiny land plots, and mostly for own consumption. Rural areas are home to 43.3% of the population. Figure Main economic indicators, % Real GDP growth Inflation rate (right axis) Unemployment rate % Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Kazakhstan International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.5% Population (million) % 0.5% Land area (thousand km 2 ) % 3.5% Agricultural area (AA) (thousand ha) % 7.8% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) % 0% 100% 200% 300% Share of arable land in AA (% ) Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en 304% * 135

136 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 338. Agricultural output showed a substantial growth and is estimated to be 3.2% per year on average from 2003 to This substantial growth goes back to an increase in the use of both primary factors of production and intermediate inputs, by 0.6 and 1% per year, respectively. Both rates are higher than the corresponding world averages and reflect the country s efforts in closing the gap to frontier technologies after a long period of disinvestments during the 1990s. With an average growth rate of 1.6% per year, TFP was the major source of output growth and only slightly below the world average. In , the agriculture share in energy use reduced considerably compared to and was substantially below the OECD average value in The share of irrigated land did not change considerably during the last two decades. Figure Composition of agricultural output growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 1.6% 0.6% 1.0% Kazakhstan 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Exports % Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Kazakhstan Imports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en 28 Energy consumption 53 Processed for consumption Processed for industry % OECD Kazakhstan GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 5.75% 1.58% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) n.a. n.a. n.a. International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% * 136

137 Development of support to agriculture 339. The level of producer support fluctuated substantially prior to 2009 and has stabilised at around 12% in more recent years. In 2015 it reached 14.6% compared to 9.6% in This strong increase was mainly due to a substantial rise in the gap between border and domestic producer prices. Around 40% of support in 2015 was provided through market price support, largely due to border protection for livestock products while some crops are implicitly taxed. Budgetary transfers to producers are dominated by subsidies to farm investments. Almost three-quarters of total support to agriculture (TSE) is provided to producers individually, the rest is directed to general services and supports food processors. PSE as % of receipts (%PSE) Support to farmers as measured by the %PSE increased from 7% in to 13% in This substantial increase was associated with improved economic conditions in the country in recent years compared to the 1990s % 13% Potentially most distorting support as % of PSE The share of potentially most distorting support (market price support and support based on output and variable input use without input constraints) showed a significant decrease over time, but with 60% of the PSE in is still very high. Market price support continues to be a major distorting policy. Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers in were 1.07 times higher than world prices compared to parity with world prices in This reflects an increased border protection for several key import competing commodities. From to , the average NPC increased for beef from 1.00 to 1.28; for pig meat from 1.0 to 1.37; and for sheep meat from 1.0 to TSE as % of GDP Total support to agriculture (TSE) as % of GDP declined from 1.6% in to 1.2% in The share of expenditures on general services (GSSE) in total support (TSE) has increased, from 5.1% of TSE in to 25.5% in % 60% % 1.2% +65.2% PSE Decomposition of change in PSE, 2014 to % MPS +8.9% BUDGETARY PAYMENTS Price Gap Quantity +55.9% +0.4% The level of support increased in 2015, mainly due to positive price gap resulting from an overpriced Kazakh Tenge before August Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Rice Sunflower Milk Beef and veal Pig meat Poultry Sheep meat Eggs Potatoes Cotton -100% -50% 0% 50% 100% % of commodity gross farm receipt for each com. The share of SCT in the PSE is 57%. This average combines a taxation of some crops and support to livestock products. 137

138 Description of policy developments Main policy instruments 340. The country s main agricultural policy framework is the Programme for Development of Agro-Industrial Complex in the Republic of Kazakhstan for (further, Agribusiness 2020), which is currently in the third year of implementation. The Programme maintains the policy orientation taken since the early 2000s to boost agricultural production as part of the country s strategy to diversify the national economy. A new component of Agribusiness 2020 compared to the previous agricultural programmes is the set of measures for the financial rehabilitation of the sector. Activities for the development of phytosanitary and veterinary systems, agrochemical services, land improvement and water management have also received stronger emphasis in this current policy framework The aggregate budget of Agribusiness 2020 over its eight-year implementation period amounts to KZT 3.1 trillion (USD 20.3 billion as in 2013), of which 80% will be provided from the national budget, 7% from local budgets, 10% through the emission of government securities, and 3% from the state company KazAgro Holding and its subsidiaries, such as the Agricultural Credit Corporation (ACC). Around three-quarters of all programme funding falls on the ongoing implementation period of The four principal blocks of the Programme are: 1) financial rehabilitation of the sector; 2) subsidies and other budgetary support to the sector; 3) development of phyto-sanitary and veterinary systems; 4) enhancement of state regulation (development of information systems, agrochemical services, seed testing, technical regulation, state inspections and control and other public services) Kazakhstan applies a range of border and domestic price policy instruments. Border measures are in large part implemented within the Customs Union of the Eurasian Economic Union (EAEC). Imports face ad valorem, specific and combined tariffs. For meat imports outside the Commonwealth of Independent States (CIS) region Tariff Rate Quotas (TRQ) are applied The major mechanism of domestic price regulation in recent years was the operation of state grain resources by the state agency Food Contract Corporation (FCC). These included stocks of food, feed, seed grains, as well as grain stocks for market stabilisation. In 2014 and 2015 the FCC also supplied regional milling enterprises with first grade flour wheat at fixed prices as specified in a memorandum on stabilisation of bread prices concluded by the Ministry of Agriculture, local administrations and the FCC in For livestock products per tonne payments are provided. While these were initially introduced for poultry only, they now cover virtually all types of livestock, and are mainly provided to large commercial producers Concessional credit is one of the principal forms of support. Primary producers also benefit from concessional leasing of machinery, which is additionally exempt from Value Added Tax (VAT). Prior to 2013, interest rate subsidies were relatively small and provided only on loans taken by agricultural processors from private banks, whereas credit agencies of KazAgro provided subsidised loans to farms. Since 2013, concessions on interest rates have been available also to primary agricultural borrowers. In addition, part of the funds previously allocated to credit agencies of KazAgro have been re-directed to the provision of interest subsidies on loans taken from private banks and farmers credit cooperatives. This policy change broke the privileged access of KazAgro s credit agencies to budgetary funding. It is also expected to increase the total volume of credit that may be offered to agricultural borrowers on concessional terms. Interest rates on agricultural loans and leasing contracts are subsidised for up to 7% and 5% per annum for contracts in KZT and USD, respectively. Interests on loans received for the 138

139 acquisition of agricultural machinery and equipment for livestock and feed production are subsidised for up to 10% and 7% per annum for contracts in KZT and USD, respectively, according to a list specified by the Ministry of Agriculture 346. Investments subsidies for new operations or the expansion of existing operations is an important support measure applied since This assistance is provided for eighteen priority sectors. The Agribusiness 2020 programme substantially increased mineral fertiliser and herbicide subsidies. This spending more than tripled between 2012 and The current level of fertiliser consumption in Kazakhstan is relatively low around 0.2 kg in nutrient equivalent are applied per hectare of arable land, compared to 5.2 kg in Australia, a country with roughly similar land use structure. However, an adequate environmental assessment of increased fertiliser and chemicals subsidies seems to be currently lacking. There are also other direct input subsidies, such as for pedigree livestock and seeds. Prices for energy are controlled administratively through fixing limits on prices for diesel fuel sold to agricultural producers; total volumes to be supplied at these prices during the sowing and harvesting periods are also determined A restructuring of farm overdue loans, the so called Programme of financial rehabilitation, began in Prior to the implementation of this programme, bad and sub-standard loans represented 42% of all credit portfolios of the state holding KazAgro and over one-half of the total agricultural credit portfolios in commercial banks. The programme foresees substantial interest concessions, with repayment schemes of overdue loans prolonged for up to nine years. The interest rate on restructured loans is equal to 14% and 6% per annum, on overdue loans in KZT and USD, respectively, which roughly correspond to the market rate. However, the government subsidizes the interest rates to final borrowers, effectively bringing debt service costs to up to 7% and 1% per annum for loans in KZT and USD, respectively. Furthermore, there is also a write off of fines and penalties on overdue loans. The vast majority of debtors include entities specialised in crop production, however, the debt restructuring also concerns livestock-specialised producers, food processors and other businesses not belonging to primary agriculture. The resources underlying these mechanisms are mainly drawn through emissions of state securities and directed to provide liquidity to KazAgro credit agencies and commercial banks which implement debt restructuring Per hectare payments for priority crops (called subsidy for improving yield productivity and compensating costs of input purchases for the accomplishment of sowing and harvesting campaigns ) have been another relatively important support measure. Priority crops include grains, oilseeds, sugar beet, forage crops, horticultural crops, cotton and potatoes. Increased rates were available for producers applying advanced technologies prior to In 2013, a regional specialisation scheme for Kazakhstan was developed and approved in It is intended to make support payments and access to concessional credit conditional on compliance with this scheme. This is to be implemented in stages and by 2020 beneficiaries are to be eligible for assistance if they fully comply with the regional specialisation scheme Agricultural enterprises and individual farms benefit from special tax regimes with substantial concessions on key business taxes Kazakhstan s policies also focus on support to the food processing sector. Along with agricultural producers, food processors benefit from concessional credit and leasing of machinery and equipment from credit agencies of KazAgro Holding. Direct subsidies to interest rates and leasing fees are also available if loans or leasing are provided by commercial companies Several infrastructure projects have been implemented that may ease constraints to agricultural development in Kazakhstan in general and agro-food export capacity in particular. A general national programme for development of transport infrastructure Nurly Zhol foresees the expansion of the railway 139

140 network to facilitate access to the Persian Gulf region, among other components. This is estimated to potentially increase the country s grain exports by up to 8-10 million tonnes per year and open the opportunities for other agro-food exports. Domestic policy developments in A most important policy change in was the decision on the abolishment of state interventions into the grain market. From 1 January 2016 the government has eliminate the practice of state purchases of grain. After its privatisation, the state agency Food Contract Corporation (FCC), which previously operated state grain resources, will be further operating in the grain market as a commercial commodity trader exclusively. In addition, the Ministry of Agriculture decided not to extend the memorandum on stabilisation of bread prices, according to which the FCC was executing sales of food wheat for regional use at fixed prices since Following an evaluation of its agricultural policies conducted in 2015, the Ministry also decided to eliminate in 2016 a number of non-effective measures of producer support, specifically, per hectare payments for priority crops, cotton quality expertise subsidy, seed subsidy, and subsidies for planting and maintaining orchards berry plantations and vineyards. However, local authorities will still be eligible to subsidize livestock producers using per tonne and per head subsidies, and within a pedigree support programme. Per tonne subsidies were adjusted in the second half of 2015 they increased by 50% for poultry products, milk and pig meat Financial rehabilitation of the agro-food sector has emerged as a strong policy concern. The debt situation had deteriorated as a result of the financial crisis and other unfavourable factors. In 2013 and 2014, there were 305 applications approved for a total amount of debt to be paid reaching KZT billion (USD 1.7 billion as in 2014). In 2015, a further 175 applications were approved for a total debt volume of KZT billion (USD 0.9 billion). In 2015 the total volume of support provided for restructuring overdue loans reached KZT 18.8 billion (USD 84.8 million), which was considerably higher than in 2014, when the volume of support within the programme was KZT 7.0 billion (USD 39.1 million). The total budget foreseen for this programme for is KZT 46.4 billion (USD million as in the first decade of March 2016) In , investments subsidies were provided to projects for a total investment amount of KZT 67.9 billion (USD million). The share of livestock farming projects accounted for 55%, while the shares of projects in crop production and processing in the total investment volume were 35% and 10%, respectively. The volume of subsidisation amounted to KZT 12.7 billion (USD 70.9) in 2014 and KZT 6.1 billion (USD 27.5 million) in The Second Irrigation and Drainage Improvement Project was launched in 2015 with World Bank co-financing. This seven-year project succeeds the first one implemented in and is aimed at improving irrigation and drainage service delivery in the four most densely populated regions of South Kazakhstan. USD 343 million is to be invested through this project, of which USD million will be financed as a loan from the World Bank In 2015, changes in the tax regime took effect limiting tax concessions to agriculture. Corporate and family farms have kept a 70% discount on five key taxes, specifically, property tax, social tax, VAT, enterprise income tax, and tax on vehicles. However, agricultural enterprises will no longer benefit from the 70% discount on land tax and will incur a five-fold increase in land tax rates. Furthermore, local authorities were given discretion in implementing a land tax increase (up to ten-fold the current rate) on agricultural land that remains uncultivated. As for individual farms, they are eligible for a Single Land Tax which is set as a percentage of the cadastre value of land owned or used and incorporates the five 140

141 business taxes mentioned above. Changes for these taxpayers include an increase in the Single Land Tax by 50% and a hectare farm size limit for individual farm eligibility. Since January 2015 individual farms have been also subject to a cap on the exemption from enterprise income tax: individual farms, whose annual income exceeds KZT 150 million (USD 0.7 million), will pay the 10% tax rate as generally set for agricultural payers. Individual farms will be further exempt from VAT. In addition, amendments to the Tax Law were introduced to allow a 100% subsidisation of VAT to primary processors and procurement organisations on agricultural products procured from individual farms from 1 January Changes to the land legislation allowing private ownership on agricultural land were made in November 2015 and will take effect on 1 July Agricultural land will then be allowed to be purchased for 50% of its cadastre value which is to be paid off during a period of up to ten years with no interest to be charged. As a measure to attract foreign investment into the country s agricultural sector, the term during which agricultural land can be used by foreign entities was increased in 2015 from 10 to 25 years Subsistence-oriented households are the dominant producers of meat, milk, potatoes and vegetables in Kazakhstan. This has been seen by the government as a structural handicap. A Law on Agricultural Cooperation that came into effect on 1 January 2016 facilitates the creation and operation of producer cooperatives and qualify them as eligible for the 70% discount on the five key taxes mentioned above, credit concessions, investment subsidies and a subsidy covering 50% of auditing costs to increase trust to this institutional form A Law on Production of organic food was adopted in November 2015 and will come into force in August This legislative act does not qualify organic farmers for any additional subsidies compared to producers of conventional food, but by stipulating requirements for organic farming aims to set legal, economic, social and organisational frameworks required for the development of organic farming An electronic system of subsidy payments will be introduced in 2016 and aims to ease control and to improve transparency and effectiveness of the government support to agriculture. An electronic system of warehouse receipts is also planned and should be implemented in Major changes in the organisation and structure of the state company KazAgro Holding are envisaged for This concerns primarily a stronger specialisation of KazAgro daughter companies on serving final recipients of their services. It is foreseen that ACC will focus its activities on funding commercial banks, credit cooperatives, microfinance organisations and leasing companies. It also will be funding large investment projects in strategic sub-sectors. The Fund of Financial Support of Agriculture (FFSA) another credit agency of KazAgro is planned to serve small and medium agribusiness, while KazAgroFinance will concentrate on leasing of machinery and equipment and will be no anymore involved in provision of credits. Furthermore, it is planned to privatise four KazAgro daughter companies. This decision concerns FCC, KazAgroFinance and two further companies within the KazAgro holding KazAgroProduct and KazAgroMarketing. Trade policy developments in A Treaty on the Eurasian Economic Union (EAEU) came into effect on 1 January 2015, with Russian Federation, Belarus, Kazakhstan and Armenia as members; Kyrgyzstan joined in May This represents one more stage of regional integration, following the Customs Union (2010) and the Common Economic Space (2012). Beyond free trade and common customs territory, the EAEU establishes free movement of capital and labour and a co-ordinated, agreed upon, or common economic policy in member countries. During 2015, the Eurasian Economic Commission (EAEC), the executive body of the EAEU, was active in the SPS and technical regulation spheres, including the approval and amendment of 141

142 plant quarantine rules and standards, sanitary and epidemiological surveillance, food safety, food labelling, food quality tracking systems, and other issues Kazakhstan s WTO accession is the major development for the period under review. The 19-year accession negotiations closed on 22 June 2015 and the country became a WTO member on 30 November Accordingly, while Kazakhstan s trade policy was guided by the EAEU Treaty during most of 2015, since accession its WTO commitments prevail over those of EAEU. Kazakhstan indicated in its accession that at a point several years into the future it would seek, through negotiations with affected WTO members, to align some of its tariffs with those of the Russian Federation Prior to its WTO accession Kazakhstan applied tariff rate quotas for meat imports from outside the Commonwealth of Independent States (CIS). Compared to the 2015 level of these quotas, Kazakhstan s quotas bound in the WTO are larger. Kazakhstan s quotas on fresh, chilled or frozen beef increased from to tonnes. Kazakhstan increased its quotas on fresh, chilled, or frozen poultry from to tonnes, consisting of one quota of tonnes for certain frozen bone-in chicken parts, and one quota of tonnes for all other poultry items. There is no quota on pig meat. Bound in-quota tariffs are set at 15% on these two types of meat. Bound tariffs for over-quota imports were reduced on beef from 50% but not less than 1 EUR/kg to 40% without any specific component, and on poultry from 80% but not less than 0.7 EUR/kg to 55% without any specific component initially and 40% but not less than 0.65 EUR/kg in The tariff on pig meat was reduced from 65% to 30% with a final rate of 25% in The average bound tariff on agricultural products is 7.6% Kazakhstan agreed on a commitment not to use export subsidies in agriculture. In its base data in the accession negotiations Kazakhstan reported its partial reimbursement of transport costs for some grain exports as export subsidies, but these subsidies were discontinued in In domestic support Kazakhstan s de minimis percentage is 8.5%. To determine the yearly product-specific limits on non-exempt support to the producers of each basic agricultural product and the limit on such support to agricultural producers in general, the percentage is applied to the values of production of each product and to the value of total agricultural production. Kazakhstan does not have a Bound Total Aggregate Measurement of Support (AMS) and is not entitled to exempt certain investment subsidies and input subsidies under Article 6.2 of the Agreement on Agriculture In acceding to the WTO, Kazakhstan outlined plans to reform its scheme of value-added tax preferences for domestic producers and processors in agriculture to a WTO compatible subsidy mechanism over a transition period ending on 1 January Kazakhstan as part of the EAEU was a signatory of the Free Trade Agreement (FTA) with Viet Nam in May In 2015, the EAEC decided to start talks on agreements for trade and economic cooperation with China. It is also examining the prospects for FTAs with India, Israel, Egypt, Iran and Thailand. References OECD (2013), OECD Review of Agricultural Policies: Kazakhstan 2013, OECD Publishing, Paris, 142

143 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 13. KOREA Support to agriculture 371. Korea has gradually reduced its support to agriculture especially in the last decade and very modest progress has been made towards more market oriented policies; however, producer support, as percentage of gross farm receipts (%PSE), is still almost three times higher than the OECD average. Korea has the fourth highest percentage PSE, following Switzerland, Norway and Iceland. The Total Support Estimate to agriculture (TSE) as percentage of GDP has significantly been reduced from 8.8% in to 1.8% in The transfer to individual farmers represents 86.1% of the TSE, while the General Services Support Estimate (GSSE) takes up 13.7% of the TSE. The expenditure on development and maintenance of infrastructure accounts for 46.5% of the GSSE, followed by Agricultural knowledge and innovation system The Market Price Support (MPS) is the dominant factor in the PSE for Korea, although the ratio of producer price to border price has been reduced from 3.35 in to 1.87 in As the government purchase programme for rice, in which the government paid a higher price than the market price, was abolished in 2005, Korea adopted a public stockholding scheme for rice, which is a purchase and release mechanism based on the current market price, supplemented with a rice income compensation scheme. This policy change increased direct payments to farmers. Figure Korea: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components Panel B. Producer support estimate as % of gross farm ( average) receipts (%PSE), Consumer subsidies General Services Support Estimate Producer Support Estimate Billion KRW Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Billion KRW Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Korea OECD Main policy changes 373. As of 1 January 2015, the tariffication of rice went into effect, replacing the previous non-tariff measures. The tariff rate on rice imports is applied at 513%, but a minimum market access (MMA) volume 143

144 of tonnes is maintained at a 5% tariff rate. On the other hand, the government announced the midterm plan to balance the supply and demand of rice by 2018 through a gradual reduction of production area, encouraging crop diversification and expanding consumption. To enhance innovation Korea announced the plan to expand the Smart Farm concept: greenhouses and cattle sheds that can be remotely controlled using smart phones and PCs, and is starting to develop an improved farm production management models based on big data analysis. Assessment and recommendations Although the share of support through budgetary payment schemes has gradually increased in most recent years through introducing new payment schemes and increasing the rate of payments, market price support still dominates. More than 90% of producer support is commodity specific, and concentrates on a limited number of products. Reforms of the rice production system should be a policy priority, and the plan to balance the supply and demand of rice is a first step in that direction. To improve market functioning and reduce distortive effects, direct payment schemes need to move away from production and market price support toward measures to target explicit policy objectives which match the objectives of society, including the provision of the environmental services such as water management, flood buffering and biodiversity. Public investment for general services, especially the agricultural knowledge and innovation system, is relatively low compared to the OECD average. Further efforts are needed to expand budget expenditure towards longer term growth and competitiveness in the sector. 144

145 Table Korea: Estimates of support to agriculture 145

146 Contextual information 374. Korea is a country with relatively high GDP per capita, dynamic growth and low levels of unemployment. It is a land-scarce country with high population density, where only 17% of the area is being used for farming. Most farms are small family farms with less than 2 hectares of agricultural land. The importance of agriculture in the economy has been decreasing with its share in domestic GDP declining to 2.3% in 2014, while its share of employment is 6%. Korea is one of the largest net agro-food importers in the world. The share of agro-food imports in total imports is around 4.9%, while that of exports is 1%. % Figure Main economic indicators, Real GDP growth Unemployment rate Source: OECD Factbook statistics. Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Source: UN Comtrade Database. Agro-food imports Table Contextual indicators Korea International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 2% Population (million) % 1.4% Land area (thousand km 2 ) % 0.1% Agricultural area (AA) (thousand ha) % 0.1% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Notes: * or latest available year.1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en 1049% 1018% * 146

147 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 375. Total factor productivity (TFP) growth has driven output growth in Korea. TFP growth of Korea was slightly higher than that of the OECD average at 1.9% over the period from 2003 to 2012, and helped to remain production growth slightly above zero while the use of farming inputs, such as labour and intermediate inputs, declined. Agriculture consumes a high share of energy and water. The share of energy use in agriculture has fallen significantly between 1995 and 2014, but is still well above the OECD average. Since rice is the staple crop in Korea, the share of agriculture in water consumption is higher than the OECD average. Figure Composition of agricultural output growth average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% 1.9% -0.4% -1.2% Korea 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Korea Imports Exports Primary for consumption Primary for industry Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Korea Energy consumption n.a GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 3.60% 1.89% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator International comparison % Deviation from OECD average 1-100% 0% 100% 200% 300% 729% * 147

148 Development of support to agriculture 376. Since , Korea has gradually reduced its support to agriculture especially in the last decade. However, support still remains high and the share of potentially most production and trade distorting forms is still around 90% of the support. Moreover, the level and developments of market price support reflect border protection on a number of commodities, of which rice is the major contributor. The ratio of total support to GDP at 1.8% is above the OECD average. PSE as % of receipts (%PSE) Korea has gradually reduced its support to agriculture since Despite this reduction the overall support remains relatively high (almost three times the OECD average). After a sharp drop in the %PSE to 45% in 2010, the %PSE increased to 50% in % 70% 67% Potentially most distorting support as % of PSE The potentially most distorting support (based on output and variable input use without input constraints) is decreasing gradually but still dominates at 93% of total support to farmers in % 95% 93% Ratio of producer price to border price Producer Nominal Protection Coefficient The ratio of producer prices to border prices has been gradually reduced. Overall the prices paid to farmers were two times higher than world market prices as measured by the NPC in The highest NPCs are for soybeans and barley TSE as % of GDP Total support as % of GDP was substantially reduced, mainly due to fast growth outside the agricultural sector, and was 1.8% in The expenditure on general services represented 11.9% of the TSE in the same period % 4.9% 8.8% -0.7% PSE Decomposition of change in PSE, 2014 to % MPS +2.1% BUDGETARY PAYMENTS Price Gap Quantity -2.3% -0.5% The level of support decreased slightly in 2015 mainly due to a decline of market price support in spite of a rise of budgetary payments. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Barley Rice Soybeans Milk Beef and veal Pig meat Poultry Eggs Chinese cabbage Garlic Red pepper 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Single Commodity Transfers (SCT) represented 93% of the PSE. The share of the SCT in the commodity gross farm receipt is lowest for Chinese cabbage, around 20%, highest for soybeans at above 80%. 148

149 Description of policy developments Main policy instruments 377. Tariffs and a wide range of tariff rate quotas (TRQs) continue to be the main instruments to support domestic prices. Since rice is one of the most sensitive agricultural products in Korea, many policies support rice producers. In compliance with the special treatment provision in the WTO Agreement on Agriculture, Korea did not convert non-tariff measures on rice to ordinary customs duty until 2014, but has established a minimum market access (MMA) quota at a 5% tariff rate. MMA volume increased from tonnes in 1995 to tonnes in A public stockholding scheme for rice is maintained in the form of a purchase and release mechanism operated at market prices to reduce price fluctuations in the domestic market and to face emergency situations such as natural disasters Direct payment programmes have been implemented from 1997 including early retirement payment, rice income compensation, promotion of environmentally-friendly agriculture, maintaining agriculture in less-favoured areas, and rural landscape conservation The most important direct payment is the rice income compensation scheme. This scheme includes both fixed and variable payment, and was introduced in While the fixed payment is decoupled income support, the variable payment is determined according to the difference between a target price and each year s post-harvest price. If the post-harvest price is lower than the target price, farmers receive 85% of the difference, after deduction of the fixed payment. The target price is set every 5 years based on the five-year price change and it is KRW (USD 171) per 80 kilograms of rice for the period , which is an increase from KRW (USD 155) for the period The agricultural insurance scheme, introduced for apples and pears in 2001, has increased its product coverage to 62 items including 46 crops and 16 livestock. The multi-peril crop insurance (MPCI) programme for pears and sweet persimmons was launched in 2013 and a pilot project of the agricultural revenue insurance scheme was introduced for onions, soybeans and grapes in The government subsidises 50% of insurance premium The Framework Act on Agriculture, Fisheries, Rural Community and Food Industry was established in 2007 and lays out the basic policy principles in agriculture. Based on the Framework Act, a five-year ( ) implementation plan, Agriculture, Rural Community and Food Industry Development Plan, was announced in Under the plan, Korea set out a target for food self-sufficiency. The volumebased target for the self-sufficiency ratio of grains (including animal feed) is 30% in 2017, but the actual level is around 23%. The plan emphasizes adding value to agricultural products in an innovative way and creating jobs by converging agriculture with other industries such as manufacturing, processing, or information and communication technology. Domestic policy developments in Direct payments for rice increased due to rice price decline in The rate of the fixed payment for paddy fields increased from KRW (USD 795) in 2014 to KRW (USD 884) per hectare in The variable payment was triggered for two years in a row following the decline in the post-harvest price and the output reached a six-year high in The rate of the variable payment was KRW (USD 14) per 80 kilograms, which amounts to KRW (USD 884) per hectare. Including the fixed payment and the variable payment, gross income per 80 kilograms amounts to KRW (USD 161) which represents 97% of the target price. 149

150 383. To tackle the continuous excess of rice, in December 2015 the government announced the midterm plan to balance the supply and demand of rice. Korea set a goal to balance the supply and demand by 2018 through a gradual reduction of production area and expanding consumption. The area of rice paddies would be reduced from hectares in 2015 to hectares in 2018 with encouraging crop diversification. Annual per capita rice consumption is aimed at 58.1 kilograms in 2018 through strengthening, diet education and investing the rice processing industry, which is lower than the 65.1 kilograms in 2014, but higher than the 57.4 kilograms projected if no measures are taken. The size of government-controlled rice stockpile should be reduced from 1.63 million tonnes in 2015 to tonnes in To increase demand and lower reserves, the government will expand to provide rice to make livestock feed and alcoholic beverages Korea has increased its investment from 2014 to expand Smart Farm, a greenhouse or cattle shed that features IoT (Internet of Things) devices enabling to check its status and control remotely through smart phones and personal computers, to save labor and managing costs. By 2015 Smart farm facilities have been installed at 769 hectares of horticulture and 186 farm household of livestock. In January 2016, the government announced the plan to distribute Smart Farm to hectares of greenhouses and 730 livestock farm households by 2017 and to start developing improved production management models based on big data analysis from Measures to compensate for the effects of Free Trade Agreements (FTAs) are strengthened. From 2016, the rate of direct payments for compensation of losses caused by FTAs, introduced in 2004, was increased from 90 to 95% of gap between the standard price, 90% of the average price of 3 years out of the previous 5 years, and the current year price. The cooperation fund of KRW 1 trillion (USD 884 million) will be created to support farmers and fishermen, which is decided by the National Assembly before the ratification of the Korea-China FTA. Private companies, public enterprises and agricultural and fisheries cooperatives will voluntarily donate KRW 100 billion in annual contribution for the next 10 years to this fund. More details on the implementation plan are still in development. Trade policy developments in As of 1 January 2015, the tariff rate of 513% on imported rice went into effect, replacing the previous non-tariff measures. The MMA volume of tonnes is maintained at a 5% tariff rate, which was one of the conditions for the special treatment in the previous schedule. The 513% tariff rate is still under process of verification by the WTO. The volume of imported rice applied with the tariff rate of 513% was only 0.6 tonnes in The Free Trade Agreement (FTA) with China, New Zealand, and Viet Nam entered into force on 20 December Korea has fourteen other bilateral and regional FTAs in force with Chile (2004), Singapore (2006), EFTA (European Free Trade Association) (2006), ASEAN (Association of South East Asian Nations) (2007), India (2010), the European Union (2011), Peru (2011), the United States (2012), Turkey (2013), Australia (2014) and Canada (2015). The FTA with Colombia, which was concluded in June 2012, is not effective yet pending the domestic approval process of Colombia Korea is currently engaged in a further four FTA negotiations. There are one bilateral FTA negotiation with Ecuador and three multilateral FTA negotiations such as the Regional Comprehensive Economic Partnership Agreement (RCEP), the Korea-China-Japan FTA, and the Korea-Central American States FTA. Korea is exploring ways to resume the FTA negotiations with Japan, Mexico and the Gulf Co-operation Council (Saudi Arabia, UAE, Oman, Qatar, Bahrain, and Kuwait). 150

151 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 14. MEXICO Support to agriculture 389. Mexico has undertaken significant agricultural policy reform since the early 1990s and considerably reduced price distortions and the share of support in farm gross receipts. The shift away from less distorting support, however, has been partly reversed since Support linked to variable costs increased, in particular the subsidies for electricity and for price hedging contracts. The programme Productive PROAGRO introduced in 2014 to succeed PROCAMPO, re-coupled area payments to production. In , transfers to producers (the PSE) constituted 80% of the total support to the agricultural sector, with the remaining 12% directed to general services and 8% to provide direct budgetary subsidies to consumers. Market price support, payments linked to output and variable and capital inputs used dominate support to producers, altogether accounting for 77% of its total. General services are focussed on infrastructure and agricultural knowledge systems, which absorbed 87% of total allocations for general services in Figure Mexico: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Million MXN Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million MXN Panel B. Producer support estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Mexico OECD Main policy changes 390. Mexico s Agricultural Development Plan for seeks to boost agricultural production, achieve greater self-sufficiency in principal grains and oilseeds, and eliminate the negative balance in agrofood trade. The implementation of the main programmes under this Plan continued in 2015 with no major changes, however, additional support was provided to crop growers whose incomes were affected by a fall in international prices during the 2014 spring-summer crop cycle. A streamlining of rural development and small farmer support programmes was undertaken to improve the efficiency and transparency of budgetary spending and reduce the administration costs of these programmes. The issue of antidumping and 151

152 countervailing duties on sugar imports from Mexico into the United States was resolved by an agreement to establish a quota on Mexican sugar deliveries to the United States. The WTO dispute since 2008 with the United States on the US mandatory country of origin labelling (COOL) provisions in application to imported Mexican cattle has been also resolved. Assessment and recommendations A greater policy focus should be placed on strategic investments in the long-term productivity, sustainability and profitability of the agricultural sector. This implies a shift away from input and output-linked subsidies towards supporting the adoption of new technologies, knowledge transfer, in particular extension services, development of food safety system, and infrastructure. The Productive-PROAGRO re-coupling support to production and the use of inputs requires an evaluation in terms of its environmental impacts and the extent to which it is effective in raising incomes of small farmers, which has been a rationale for these area payments. Phasing-out subsidies to electricity for pumping water would help a more optimal use of water an issue of important policy concern. Direct support could be considered to help farmers adopt the practices for more efficient and sustainable use of water. Commercial farmers need to be equipped with a range of tools to manage normal business risks. High subsidies for one specific risk management instrument, such as price hedging, should be avoided. Government support for catastrophic events beyond the capacity of individual farmers to manage their consequences needs to be available and be based on a well-defined set of rules. Policy approaches should be differentiated to respond to the needs of commercial farms and small farmers producing largely for own consumption. As the overall economy develops, poverty reduction should be pursued through place-based development policies and targeted social assistance, rather than through production-linked subsidies. 152

153 Table Mexico: Estimates of support to agriculture 153

154 Contextual information 391. Mexico has large population and land area and ranks 11 th largest world economy in purchasing power parity terms. Economic growth was moderate at 2.1% in 2014 and 2.3% in The agricultural sector contributes 3% to GDP, but accounts for 13% of the employment. Agro-food group constitutes important shares of total imports (6.8%) and total exports (6.2%). Mexico has been a long-standing net agro-food importer, but in 2015 agro-food trade balance registered a surplus of USD 800 million. The farm structure combines commercial, capital-intensive establishments and low-productive, often subsistenceoriented smallholder farms. Some of the smallholders suffer low incomes and poor social conditions. Around half of the country territory is in communal land ownership (ejidos). Figure Main economic indicators, % Real GDP growth Unemployment rate Source: OECD Factbook statistics. Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Source: UN Comtrade Database. Agro-food imports Table Contextual indicators Mexico International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 3% Population (million) % 3% Land area (thousand km 2 ) % 3% Agricultural area (AA) (thousand ha) % 4% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en * 154

155 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 392. Since 2003, agricultural output in Mexico has been increasing predominantly due to the improvements in Total Factor Productivity (TFP) and by far less due to more inputs and capital used. TFP growth in the 2000s, however, has been less dynamic than during the 1990s; it was also lagging behind the average TFP growth across the world. Agro-food imports are focussed on supplying domestic processing, while exports are directed mostly for final consumption. Agricultural activity results in surpluses of nitrogen and phosphorous, but they have diminished since the mid-1990s. Agriculture accounts for over three quarters of total water consumption, significantly above the average share for the OECD area. The part of land under irrigation had slightly increased during the 2000s, as had the water stress. Figure Composition of agricultural output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 1.5% 0.2% Mexico 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Exports % Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Mexico Imports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en 7 Energy consumption 35 Processed for consumption Processed for industry % OECD Mexico n.a GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 2.84% 1.48% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% * 155

156 Development of support to agriculture 393. Agricultural policy reform since the early 1990s has significantly reduced price distortions and the share of support in farm gross receipts. The shift away from less distorting support, however, has been partly reversed since Support linked to variable costs increased, in particular the subsidies for electricity and for price hedging contracts. The programme Productive PROAGRO, introduced in 2014 to succeed PROCAMPO, re-coupled area payments to production. Transfers to producers (PSE) accounted for 80% of total support to the agricultural sector in , with the remaining 12% directed to general services and 8% to provide direct budgetary subsidies to consumers. PSE as % of receipts (%PSE) Support, as measured by the %PSE was reduced from 28% in the reference period to 10% in , below the OECD average of 18% % 28% % Potentially most distorting support as % of PSE Market price support was reduced and partially replaced by direct payments based on noncurrent area and the number of animals. The potentially most distorting support based on output and variable input use with no input constraints decreased to 40% of total producer support in , compared with 92% in However, since 2000 support based on input used has increased. Ratio of producer price to border price Producer Nominal Protection Coefficient Border protection and price interventions were significantly limited due to trade liberalisation. Farmer prices were on aggregate 2% above border prices in , compared with 34% in The commodities with the largest of producer-to-border price ratio (nominal protection coefficient) in are sugar (1.10), poultry (1.07) and rice (1.06). TSE as % of GDP Total support to agriculture was 0.6% of GDP in , or at the OECD average level. Support to general services constituted 12% of total support % % 92% 98% % % -7.0% PSE Decomposition of change in PSE, 2014 to % MPS -8.5% BUDGETARY PAYMENTS Price Gap Quantity +1.5% +0.02% The value of support to producers (PSE) decreased in 2015, mainly due to lower budgetary transfers; this reduction was only slightly offset by an increase in market price support. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Sorghum Rice Soybeans Sugar Beef and veal Pig meat Poultry Eggs Dried beans Coffee -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The Single Commodity Transfers (SCT) represented 34% of the total PSE in

157 Description of policy developments Main policy instruments 394. Mexico has reformed its agricultural policies over the last two decades, reducing border protection through WTO, NAFTA and other trade agreements and implementing direct payment programmes. Mexican agricultural markets operate today under fairly open trade regime, the majority of trade flows occurring within regional free trade arrangements. However, domestic market price support and payments based on output are maintained for some key commodities, such as sugar, grains and pulses, and oilseeds Investment assistance is the largest component of budgetary support to producers. It is provided for purchases of on-farm machinery and infrastructure for crop and livestock production, irrigation, and productive reconversion of crops; specific investment supports are available to small farmers. Subsidies for variable inputs are another principal direction of support, consisting of subsidies for price hedging, electricity, irrigation, and crop insurance. Payments based on area and livestock numbers are also important, their large part provided through two programmes: Productive PROAGRO makes per hectare payments based on historical area, while Productive PROGAN offers her head payments based on historical livestock numbers and requires its beneficiaries to comply with certain environmental conditions. General services to the sector are focused on the financing of agricultural education system and irrigation infrastructure A range of programmes are addressed to small agricultural producers and rural poor, more broadly. A special investment support programme operates for small maize and bean growers. The Strategic Project for Food Security (PESA) provides investments and technical assistance, both at individual and community level, to support farming in marginal and poor areas. Several other programmes are targeted to smallholders and specific rural groups, such as rural women and rural youth Over half of Mexican territory is under some type of social land tenure ejidos, or agrarian communities in which special management regimes govern both collective land and land plots granted to individuals. The most recent census (2007) reports 69% of production units under the social land tenure, operating 39% of agricultural land. Land reforms were initiated in 1990, but had limited practical impact. Although perceived socially important, some of the provisions related to communal land are among the factors constraining today the sale and use of agricultural land With almost half of the population below poverty line, food consumption subsidies are an important poverty alleviation instrument in Mexico. Poor families obtain basic staples through DICONSA rural shops, while LICONSA programme distributes reduced-price milk, and SEDESOL programme provides cash transfers for food purchase. Domestic policy developments in Mexico is in the mid-term of the Agricultural Development Plan , its six-year agricultural policy framework. The Plan is broadly oriented at boosting domestic production and strengthening food security. It seeks to achieve greater self-sufficiency in principal grains and oilseeds and to eliminate the negative balance in agro-food trade. The Plan emphasises increased productivity, profitability and competiveness of the agriculture and food sector and sets the following objectives: i) increased productivity of small farms; ii) optimal use of water; iii) increased domestic production of agricultural inputs, such as fertilisers and seeds; iv) enhanced innovation through new extension; v) risk prevention and management; vi) promotion of healthy food production; vii) enhanced competitive financing; viii) boost to 157

158 regional development; ix) supply and demand planning based on information systems; and x) modernisation of the Ministry of Agriculture Nine broad programmes, further incorporating 43 sub-programmes, are being implemented within the current Agricultural Development Plan. PROCAMPO has been replaced by Productive PROAGRO, which continues area payments and maintains the same beneficiaries who were registered in PROCAMPO. However, if PROCAMPO provided area payments with no requirement to produce, the new Productive PROAGRO provides payments to cover production expenses incurred and upon the proof of those expenses. This may be items such as technical assistance, machinery, certified seeds, fertilisers, insurance, or price hedging. Under the Productive PROAGRO, payments are differentiated by type of producer subsistence farmers receive a higher payment per hectare compared to the transition and commercial farmers Another feature of the current Agricultural Plan is that it puts a stronger emphasis on investment support and on infrastructure development to improve the capacity of processing, storage and handling of food. The National System of Agri-parks and the South South-Eastern Productive Development project are also important undertakings. The new Law of Special Economic Zones enacted by Congress in December 2015 is expected to help these less developed areas of the country to advance economically and socially During the monitored period, no important changes occurred in the implementation of main price support programmes. However, ad hoc payments per tonne were provided to crop growers whose incomes were affected by a fall in international prices during the 2014 spring-summer crop cycle. This support was implemented in Growers from 25 Mexican states were granted a MXN 250 (USD 16.7) per tonne payment over a total of 2.26 million tonnes of maize, sorghum, wheat and soybeans produced, corn accounting for 65% of that volume. Producers who received supported through the government s facility Agriculture by Contract during the 2014 spring-summer crop cycle were not eligible for this assistance During its third year of operation in 2015, Productive PROAGRO disbursed around MXN 13 billion (USD 820 million) of area payments, or nearly the same amount as in the previous year. This is 10% below the average annual spending in the last PROCAMPO s triennium. In 2014, 91% of approved Productive PROAGRO payments were spent to cover costs of labour, fertilisers and improved seeds In 2016, some streamlining of rural development and small farmer support programmes was carried out. A new Rural Productivity Programme (PPR) was created to include some sub-programmes of the previous Integrated Rural Development Programme. Another new Programme for Support of Small Farmers (PAPP) consolidated several programmes, previously under the responsibility of different government agencies or different units within those agencies. Several components of the Programme for Innovation, Research, Technological Development and Education (PIDETEC) focussed on rural development were also transferred to other programmes. These changes aim at improving the efficiency and transparency of budgetary spending and reducing the costs of administration of programmes. The conditions of re-organised programmes, such as the eligibility criteria, target beneficiaries, types or amounts of support, remain unchanged Mexico introduced new rules and requirements for organic agriculture certification in October Certified organic producers can benefit from the assistance for crop conversion, organic inputs, conformity assessment and national labelling for organic products. In 2015, the original deadline to comply with organic products certification was extended until October This extension also applies to organic products imported from countries which are in the process of establishing equivalency of their organic programmes with Mexico. 158

159 406. In March 2015, the sale of nine state-owned sugar mills was announced. Following several auctions in the course of 2015, seven mills have been auctioned by December 2015, altogether accounting for somewhat over 18% of the national sugar output. Trade policy developments in In December 2014, Mexico and the United States concluded an agreement to resolve the issue of antidumping and countervailing duties on sugar imports from Mexico into the United States. According to this agreement, Mexico shall control the volume of sugar exported to the United States through export licenses to ensure that its supplies do not exceed the maximum amount allowed for export to the United States. A quota is assigned to each of the Mexican sugar mills registered for exports to the United States. It covers twelve sugar tariff lines which include refined and other sugar. The exports of refined sugar cannot exceed 53% of total Mexican sugar exports to the United States. During the 2014/15 sugar cycle the maximum quota amounted to nearly 1.38 million metric tonnes in raw value, and the quota for the 2015/16 cycle announced in July 2015 was set at 0.98 million tonnes. The agreement also establishes reference prices, or minimum prices, for refined and all other sugar Trade policy developments also concerned the conclusion of the WTO dispute with the United States on the mandatory country of origin labelling (COOL) provisions in the US Farm Bill. In 2008, Mexico and Canada challenged the treatment accorded by the United States to imported Canadian cattle and hogs, and imported Mexican cattle, under these amended COOL rules. In October 2014, the WTO Compliance Panel found that the new US COOL regulations violate Article 2.1 of the TBT Agreement and Article III:4 of the GATT 1994, discriminating against Mexican and Canadian exports of cattle and hogs. With regard to the panel s finding, the United States notified its decision to appeal certain issues of law covered in the compliance panel report and certain legal interpretations developed by the panel. The Appellate Body subsequently upheld the panel's analysis and in December 2015, Mexico was authorised to suspend the application to the United States of concessions or other obligations in an amount of USD million annually. Mexico has taken no action as the United States has changed its legislation in compliance with WTO findings (see also Chapters 3 and 22) In 2015, Mexico carried out an anti-dumping investigation on imports of apples from the United States and decided to impose preliminary antidumping duties as of January 2016 until a final determination is reached Following the outbreaks of highly pathogenic avian influenza (HPAI) in the United States in 2014 and 2015, Mexico has prohibited the imports of a range of poultry products from 15 US states. In view of the reduced US supplies, a duty-free tariff rate quota for poultry meat was opened in early February 2014 until December 2015, and subsequently extended up to December Brazil and Argentina are likely to be the principal suppliers for Mexico s poultry meat TRQ The main development in multilateral trade relations was the signature of the Trans-Pacific Partnership Agreement (TPP) on 4 February Mexico is a signatory to this agreement, together with 11 other parties. The Agreement provides a significant scope for liberalisation of agricultural trade. Upon full implementation after 16 years, 98.8% of Mexico s agricultural tariff lines would become duty free for imports from TPP members Mexico is part of the 13 regional Free Trade Agreements (FTAs), such as NAFTA, FTA with the European Union, EFTA, Central America, and also bilateral FTAs with Colombia, Chile, Israel, Uruguay, Japan, and Peru. In 2015, new FTAs with Panama and the Pacific Alliance (Chile, Colombia, Mexico and Peru) entered into force. Mexico is currently engaged in bilateral FTA negotiations with Turkey and Jordan. 159

160 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 15. NEW ZEALAND Support to agriculture 413. Since its reforms of agricultural policies in the mid-1980s, production and trade distorting policies supporting the sector in New Zealand have virtually disappeared. For more than 25 years, the level of support to farmers has been the lowest among OECD countries. Support is provided mainly in the context of animal disease control, relief in the event of natural disasters, and the agricultural knowledge and information system. In recent years, more than three-quarters of all support was through these and other general services Almost all prices are aligned with world market prices due to open trade. Exceptions are due to New Zealand's Import Health Standards which effectively prevent fresh poultry, eggs and some bee products from being imported under current economic conditions, thus generating some market price support for these sectors. Figure New Zealand: Level, structure and evolution of agricultural support Million NZD Panel A. Total Support Estimate and its main components ( average) Producer Support Estimate General Services Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million NZD Panel B. Producer Support Estimate as % of gross farm receipts (%PSE), % New Zealand OECD Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), Main policy changes 415. New Zealand's recent policy changes focus on specific individual problems and thus comprise a set of detailed developments related to damage prevention, reparation and compensation, animal welfare, innovation for sustainable growth, biosecurity risks, and the facilitation of Māori agribusiness. Responses to the significant drought and unusually severe storms and flooding faced by parts of the country in 2015 included additional funds for reparation of infrastructure, for limiting soil erosion and for assisting affected farm households. Investments into research focused on nutrient management, GHG emissions and forage 160

161 quality. Research is also looking at ways to improve the productivity of Māori-owned land. The major event in trade polices was the signing of the Trans-Pacific Partnership (TPP) agreement between New Zealand and 11 other members in February Assessment and recommendations New Zealand policies strongly focus on limiting biosecurity risks, enhancing productivity and encouraging reduced GHG emissions and other environmental externalities from agricultural production by way of specific and targeted measures. New Zealand's Import Health Standards effectively prevent fresh poultry, eggs and some bee products from being imported under current economic conditions; New Zealand should investigate alternatives to the current system for achieving its sanitary objectives. Kiwifruit exports to markets other than Australia continue to be regulated by requiring authorisation by Kiwifruit New Zealand for third-country exports by groups other than Zespri. 161

162 Table New Zealand: Estimates of support to agriculture 162

163 Contextual information 416. New Zealand is a small open economy with a relatively high dependency on international trade. It is a consistent and growing net exporter of agro-food products which represent more than half of its total exports. Most of the agro-food exports are for final consumption with only one-fifth represented by intermediary products. With little arable land, its agricultural sector is strongly focused on grass-fed livestock products, making it the world's largest exporter of dairy products and sheep meat, although fruit and horticultural products also contribute significantly to the sector's output. The importance of agriculture in the total economy is higher than in most other countries covered in this report, with agriculture accounting for almost 7% in both GDP and employment. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators New Zealand International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.2% Population (million) % 0.1% Land area (thousand km 2 ) % 0.3% Agricultural area (AA) (thousand ha) % 0.4% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Notes: * or latest available year.1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en 517% 799% * 163

164 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 417. New Zealand's agricultural sector is the prime consumer of the country's freshwater and the main source of GHG emissions. Due to the importance of the dairy and cattle sector, its overall nitrogen and phosphorous surplus is also above the OECD average. Growth in total factor productivity (TFP) is estimated at 0.4% p.a. on average over the last decade available, a rate well below that of many other countries, contributing to a comparatively moderate growth in agricultural output. Figure Composition of agricultural output growth average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.0% 2.5% 2.0% Figure Composition of agro-food trade, Primary for consumption Processed for consumption Primary for industry Processed for industry Imports Exports % Source: UN Comtrade Database. 1.5% 1.0% 0.5% 0.0% 0.4% 0.7% 0.1% New Zealand 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators New Zealand % OECD New Zealand Energy consumption GHG emissions Water use Water stress indicator Share of agriculture in total TFP annual growth rate (% ) 1.78% 0.39% 1.58% 1.74% Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en World OECD average 470% 435% * 164

165 Development of support to agriculture 418. New Zealand has an export oriented agricultural sector, representing more than half of the country's total exports. With the exception of a few products subject to SPS-related import restrictions, domestic prices have been aligned with world market for the last 25 years, and the level of support is consistently the lowest among OECD countries. Policy focuses on sector-wide general services, particularly the knowledge and innovation system, livestock disease control and water management. PSE as % of receipts (%PSE) With less than 0.7%, producer support was very small within gross farm receipts in It has been the lowest in the OECD since the agricultural reforms of the mid-1980s: during , the PSE had stood at 10% % 1% 10% Potentially most distorting support as % of PSE The majority of the (very low) support to producers is provided as potentially most distorting support (based on output and variable input use without input constraints): in , this support, a result of sanitary measures, represented 80% of the PSE, up from 18% in % 52% 80% Ratio of producer price to border price Producer Nominal Protection Coefficient With most domestic prices aligned with international markets, agricultural receipts were almost identical to what they would have been at world prices in The only exceptions were poultry and eggs, due to sanitary import restrictions TSE as % of GDP Total support to agriculture represented 0.3% of GDP in , of which GSSE accounted for some three-quarters % 1.6% % Decomposition of change in PSE, 2014 to 2015 Transfer to specific commodities (SCT), % Price Gap -11.0% MPS Payments based on output Other SCT -9.7% PSE MPS +0.1% Quantity +1.2% Poultry BUDGETARY PAYMENTS Eggs The level of support decreased in 2015 following increased border prices for poultry, due to the weaker NZ-Dollar relative to the US- Dollar more than offsetting the lower world market prices. 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Producer SCT by commodity was 21% for eggs, 12% for poultry and zero for all other commodities in

166 Description of policy developments Main policy instruments 419. New Zealand largely limits its agricultural support to expenditures on general services, such as agricultural research and bio-security controls for pests and diseases. A significant share of the costs of regulatory and operational functions, including for border control, is charged to beneficiaries In the event of natural disasters that are beyond the response capacity of private insurance, local farmer organisations or territorial local authorities, farmers may receive restricted assistance to help replace production capacity. In the event of a medium or large scale natural disaster farmers whose income falls below a threshold level may, for a limited period and if the farmers cannot support themselves with cash assets or with other sources of income, be eligible for the equivalent of the unemployment benefit Import Health Standards (IHS) are documents issued under the Biosecurity Act They state the requirements that must be met before risk goods can be imported into New Zealand; all imported goods must satisfy these IHS. Some products (representing a small share of New Zealand s agricultural output: eggs, uncooked poultry and some bee products) fail to meet the relevant sanitary IHS and therefore cannot be imported. These measures lead to some market price support for the mentioned products Practically all of New Zealand s agricultural production and trade is free from economic regulations. Since the phasing out of restrictions for dairy exports to specific tariff quota markets by the end of 2010, such export rights are now allocated to dairy companies on the proportion of milk-solids collected. Export regulations continue to exist for kiwifruit: the New Zealand company Zespri has the default right to export kiwifruit to all markets other than Australia, but not the sole one. Other groups willing to export can do so independently to Australia, subject to an export licence under the New Zealand Horticulture Export Authority Act Exports by other groups to other countries are possible in collaboration with Zespri, subject to authorisation by Kiwifruit New Zealand, the relevant regulatory body. In case of objection by Zespri to collaborative marketing applications, Kiwifruit New Zealand can still approve collaborative marketing applications if it expects overall wealth of New Zealand kiwifruit suppliers to increase The Dairy Industry Restructuring Act 2001 (DIRA) was established to promote the efficient operation of the New Zealand dairy industry. In particular it aims at ensuring that farmers can freely enter and exit the Fonterra Co-operative, and that other processors can obtain raw milk necessary for them to compete in dairy markets. Since the DIRA regime was put in place the share of milk collected by the Fonterra Cooperative has declined from about 96% of the New Zealand total in to approximately 85% in the season Industry good activities 33 (such as research and development, forming and developing marketing strategies, and providing technical advice) previously undertaken by statutory marketing boards are now managed through producer levy-funded industry organisations under the Commodity Levies Act Under this legislation, levies can only be imposed if they are supported by producers, and producers themselves decide how levies are spent. With a very limited number of exceptions, levy funds may not be 33. Activities beneficial to the industry, but whose benefits cannot be captured by those who fund or provide the activity, or long-term investments in the industry made with the expectation of accelerating delivery of better technology and products for the industry (NZIER, 2007). 166

167 spent on commercial or trading activities. The levying organisations must seek a new mandate to collect levies every six years through a referendum of levy payers Two key policy measures that address agri-environmental issues are the Resource Management Act 1991 (RMA) and the Sustainable Farming Fund (SFF). The objective of the RMA is to promote the sustainable management of natural and physical resources, including soil, water, air, biodiversity and the coastal environment. RMA responsibilities are generally assigned to regional and district councils. They include environmental regulation, soil conservation, flood control and drainage works, and plant and animal pest control. Reforms of the RMA were initiated in 2013, including increased national direction on planning matters, the provision of greater consistency, improved certainty, and the development of planning templates to enable a more standardised and simplified approach to resource management. In addition, regulations were improved with respect to the release of pollutants into the ocean environment, and the development of a new Marine Protected Areas Act The SFF, set up in 2000, supports community and industry driven projects aimed at improving the productive and environmental performance of the primary sectors. In 2011, the SFF was expanded to include aquaculture reflecting the Ministry for Primary Industries new responsibility for fisheries as well as agriculture, forestry and food safety. In late 2012, a smaller and additional funding round was held, which focused specifically on Maori agribusiness projects. The SFF also funds projects that specifically support the three core objectives of the MPI Climate Change Plan of Action, including mitigation, adaptation, and business opportunities. Overall, the Fund has backed 948 projects over 15 years, supporting sustainability and resilience in the primary sector The Primary Growth Partnership (PGP) programme was introduced in 2009 and is administered by the Ministry for Primary Industries. The PGP is a government-industry partnership initiative that invests in significant programmes of research and innovation to boost agricultural productivity, economic growth and the sustainability of New Zealand s primary, forestry and food sectors. Investments cover the whole of the value chain, including education and skills development, research and development, product development, commercialisation, commercial development, and technology transfer. PGP programmes are up to seven years duration and industry contributions must be at least equal to Crown funding. The total PGP funding commitment from government and industry in these programmes as at the end of 2015 was around NZD 724 million (USD 505 million), 34 of which the government's commitment is NZD 344 million (USD 240 million) The Irrigation Acceleration Fund (IAF), announced in the budget, superseded the Community Irrigation Fund established in 2007 and additionally builds on the grant funding support previously provided to irrigation-related projects through the Sustainable Farming Fund. By the end of 2015, the IAF has provided over NZD 22 million (USD 15 million) in grant support to 18 projects throughout New Zealand, with an amount committed by IAF of NZD 39 million (USD 27 million). To be eligible for funding, the projects need to promote efficient use of water, environmental management, and demonstrate a commitment to good industry practice. The IAF helps support the development of irrigation infrastructure proposals to the stage where they are commercially robust and demonstrate a high level of community support. IAF-funded projects are expected to allow for around hectares of new irrigated areas; some hectares have been commissioned or are currently constructed The Crown Irrigation Investments Limited (CIIL) facilitates the Crown's investments in regional water storage and off-farm irrigation infrastructure schemes, including potentially projects that were supported to the investment-ready phase by the IAF. While a total of NZD 120 million 34. All values in this policy description use the 2015 exchange rate for monetary conversion. 167

168 (USD 84 million) is available from the fund for investment, currently only one project is underway, accounting for NZD 6.5 million (USD 4.5 million) The New Zealand Emissions Trading Scheme (NZ ETS), New Zealand's primary policy response to climate change, imposes reporting obligations on agriculture, including meat processors, dairy processors, nitrogen fertiliser manufacturers and importers, and live animal exporters, although some exemptions apply. The NZ ETS also imposes an emissions cost on the transport fuels, electricity production, synthetic gases, waste and industrial processes sectors. Domestic policy developments in The main policy developments that may impact on the agricultural sector include: encouraging innovation and sustainable growth; managing water and land resources; greenhouse gas initiatives; food safety policy and bio security. The detailed policy changes are as follows: 432. New Zealand has seen both a significant drought and unusually severe storms with flooding in As a result, the Government established a one-off support package for affected regions. Additional funding of NZD 2.6 million (USD 1.8 million) was made available to the local authorities of Taranaki, Whanganui and Manawatu for use in repairing infrastructure and rebuilding roads. Local Rural Support Trusts liaised with farmers in the affected regions to determine those who were eligible for Rural Assistance Payments (RAPs). RAPs cover essential living costs for those farmers whose income is impacted by a medium-scale adverse event A consequence of the severe storms is the damage caused by hill country erosion. The New Zealand Government established the Hill Country Erosion Fund in 2007 to improve the sustainability of hill country agriculture. The fund provides an opportunity for regional councils to bid for funding every four years, and to use that time to plan and deliver initiatives designed to remedy the erosion problem across hectares. Funding in 2015 for the Hill Country Erosion Fund amounted to NZD 2.2 million (USD 1.5 million) Challenging farming conditions also impact the mental health of farmers and their families. The Ministry of Health and the Ministry for Primary Industries are working together on a Rural Mental Health Programme focused on promotion, prevention and early intervention of rural mental health issues. Funding will support and improve outreach services and develop resources for communities in need OVERSEER is a nutrient management tool used for setting and managing nutrients within environmental limits. The computer model helps farmers and growers improve their productivity, reduce nutrient leaching into waterways, and reduce GHG emissions. It is jointly owned and developed by the MPI, the New Zealand Fertilizer Association, and AgResearch Limited. Additional funding of NZD 1.1 million (USD 0.8 million) has been allocated to improve OVERSEER during the period The Animal Welfare Amendment Act 1999 was amended in May Changes include the development of new regulations, improved compliance and enforcement capability and the management of the welfare of animals in a civil defence emergency, such as in the event of flooding or earthquakes The New Zealand Government continues to research and develop mitigation technologies to reduce agricultural GHG emissions. This includes through funding the New Zealand Agricultural Greenhouse Gas Research Centre, collaboration with the agricultural sector through the Pastoral Greenhouse Gas Research Consortium, and by committing NZD 45 million (USD 31 million) until June 2016 to fund New Zealand s participation in the Global Research Alliance, of which New Zealand currently holds the Secretariat. This alliance is made up of 46 member countries collaborating on the 168

169 research, development and extension of technologies and practices. It will help deliver more climateresilient food systems without growing GHG emissions. The Alliance brings countries together to focus on research, development and extension of technologies and practices that will help deliver ways to grow more food (and more climate-resilient food systems) without increasing greenhouse gas emissions The New Zealand kiwifruit industry is overcoming the challenges of the bacterial disease Psa-V. A group of kiwifruit growers, and a post-harvest operator, are suing the Crown for what they allege is negligence resulting in the bacterial kiwifruit vine disease "Psa-V" entering into the country. The Ministry for Primary Industries (MPI) does not accept the allegations and is defending the litigation. A statement of defence was filed in the High Court in March 2015, and the litigation is ongoing The Food Act 2014 has come fully into force on 1 March It shifts New Zealand's domestic food system from eliminating risk through prescriptive regulation to achieving the same result though a risk based approach that focuses on the outcome of providing safe and suitable food. This also aligns the domestic food system with the risk-based approach of other New Zealand food statutes that have more of an export focus. To ensure effective implementation of the Act, the MPI has established a new Food Safety Compliance team with 12 new food officers The Afforestation Grant Scheme is a NZD 22.5 million (USD 15.7 million) programme to establish hectares of new forest plantations over the next six years. The first round of successful funding applications cover hectares to be planted throughout New Zealand, and farmers and land owners will receive support payments worth NZD 7.56 million (USD 5.3 million) through this scheme. New planting will begin in winter 2016, aiming at increased erosion control, improved water quality, reduced environmental impacts following flooding, and reduced GHG emissions The New Zealand government continues to engage with industry and stakeholders to build biosecurity readiness and response capability. A Government Industry Agreement on Biosecurity Readiness and Response (GIA), a voluntary partnership between government and primary industries, establishes an integrated approach to preparing for and effectively responding to biosecurity risks, and aims to protect New Zealand's natural advantage and resources while facilitating trade. By the end of 2015, five primary industry bodies covering kiwifruit, apple, equine, forestry, pork and onion have signed GIAs with the MPI. Primary industry groups who sign the GIA have a direct say in managing biosecurity risks. Seven groups across the animal sector are in the process of considering joining the GIA The Te Ture Whenua Maori Act 1993 (the Act) is currently being reformed. The Māori Agribusiness: Pathway to Increased Productivity (MAPIP) has refined the outcomes of a prototype programme to focus on tangible, on-the-ground projects that aim to overcome barriers to improving productivity. The MAPIP framework supports Maori primary sector asset owners to address challenges, provides access to expert advice, and strengthens decision-making. The current reform of the Act is also complemented by the Te Ture Whenua Māori Network which was established in 2015 to support research, interventions and tools aimed at improving the productivity of Māori land Pastoral Genomics is an industry-led research partnership between DairyNZ, Beef+Lamb NZ, Grasslands Innovation, NZ Agriseeds, DEEResearch, AgResearch, and Dairy Australia. Its objective is to provide pastoral farmers with better forage cultivars with improved nutritional content and higher resilience to drought and disease. It aims to increase productivity, profitability and environmental sustainability of New Zealand s pastoral farming systems. The New Zealand Government will invest NZD 7.3 million (USD 5.1 million) over five years through the Ministry of Business, Innovation, and Employment (MBIE) research partnerships programme; this funding will be matched by industry funding. Investment in the partnership aims to boost sustainability of New Zealand s pastoral farms and to increase the value of exports in the sector, contributing to the Business Growth Agenda goal of increasing the ratio 169

170 of exports to GDP for the benefit of all New Zealanders. The partnership intends to use non-regulated biotechnologies to help progress breeding and commercialisation of high-performing forages for grazing livestock The Government is working on wide-ranging, staggered and long-term improvements to how fresh water is managed in New Zealand. The fourth report of the Land and Water Forum was released in November 2015; it provides recommendations on how to maximise the economic benefits of fresh water while managing within water quality and quantity limits consistent with the National Policy Statement on Freshwater Management 2014 (NPS-FM). Recommendations from the Land and Water Forum include a proposal to exclude large livestock from New Zealand waterways, other than for certain types of farming terrain, in an effort to protect water quality. The Government will publicly consult in 2016 on next steps for fresh water reform. Trade policy developments in New Zealand currently has ten Free Trade Agreements (FTAs) in force, which account for some 49% of its primary industry exports. Most recently, the New Zealand-Korea FTA entered into force on 20 December There are an additional two free trade agreements that are concluded but not yet in force, including the Trans-Pacific Partnership Agreement (TPP) and the New Zealand-Gulf Cooperation Council FTA (involving Bahrain, Kuwait, Oman, Quatar, Saudi Arabia and the United Arab Emirates). Finally, New Zealand signed the Anti-Counterfeiting Trade Agreement (ACTA) in 2011, an agreement also signed by ten other WTO member countries which aims at combatting the growing international trade in counterfeit goods and pirated copyright protected works, but which to date has only been ratified by Japan New Zealand continues negotiations in the Regional Comprehensive Economic Partnership (RCEP), involving the ten member countries of the Association of South-East Asian Nations (ASEAN), Australia, China, India, Japan and Korea. In October 2015, New Zealand and the European Union agreed to launch negotiations for a NZ-EU FTA. FTA negotiations with the customs union of the Russian Federation, Belarus and Kazakhstan are currently on hold. 170

171 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 16. NORWAY Support to agriculture 447. Progress in reducing the level of support has been modest and it is amongst the countries with the highest levels of support to the farming sector. The Total Support Estimate to agriculture (TSE) was slightly less than 1% of GDP in recent years. Support to farmers (PSE) accounts for 60% of gross farm receipts. Market price support (MPS), mainly due to border protection, still remains the main component of support to farmers, and has only slightly been reduced from 48% of the PSE in to 43% in While the share of potentially most production and trade distorting support has declined, it still represented most of the support in recent years. Support that is based on individual commodities (mainly market price support) represents 60% of support to farmers and is relatively evenly distributed over commodities. Prices received by producers are on average 80% above world market prices. Expenditures on general services for the sector as a whole (General Service Support Estimate - GSSE) are relatively small and mostly finance the agricultural knowledge and innovation system. Figure Norway: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Million NOK Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million NOK Panel B. Producer support estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Norway OECD Main policy changes 449. The strategic objectives of agricultural and food policies, as set out in the White Paper No. 9 ( ) are: food security; agriculture throughout the country; creating more added-value; and sustainable agriculture. The agricultural policy aims at safeguarding agricultural resources, developing know-how and contributing to the creation of employment and value added in farming and farm-based products throughout the country. Agricultural support policy is a substantial component of Norway s regional and rural policies. 171

172 450. In past decades, farm support has been reduced only modestly and remains three times higher than the OECD average. Notwithstanding some reforms, mainly in the area of introducing more flexibility in the dairy quota system, farm support remains substantial and market distorting and there remains considerable scope for accelerating the pace of reforms. Reform of agricultural policies is on the government s agenda and several commissions and white-paper processes have been launched. Assessment and recommendations Agricultural support remains overly concentrated on maintaining the status quo and progress towards reform has been very modest. Despite lower price distortions, Norway s agricultural sector remains among the most highly protected in the OECD area. The cost-efficiency and tenability of the policy mechanisms are questionable. Attention should be focused on balancing the costs and distortions of support against its claimed benefits (generally in the form of public goods such as food security and sustaining rural economies). Border protection should be reduced, by lowering import tariffs, preferably through a legislated multi-year programme of reductions in order to signal policy commitment and provide a planning horizon for producers. Plans to phase out export subsidies for agricultural products would reduce the distortions associated with these measures and enhance the exposure of producers to market signals. Payments for output and inputs should be reduced, in order to improve producers awareness of market signals, and measures that hinder structural shifts towards a more viable agricultural sector should be removed. The proposal of the Government to lighten the legislation on land use and land transfer is a step towards facilitating structural adjustment of the sector. Greater efforts can be made to further strengthen the links between stated policy-objectives and payments for cultural and environmental support mechanisms. An assessment of whether the current format of annual negotiation between government and farmer representatives is well-suited to promoting reform would also be beneficial. 172

173 Table Norway: Estimates of support to agriculture 173

174 Contextual information 451. Norway has the second highest GDP per capita in the OECD area, with relatively low unemployment and modest inflation. Agriculture constitutes a relatively small share of GDP and employment. The climate and prevalence of thin soils and mountainous areas render most of the land surface unsuitable for cultivation. The sector produces a rather narrow range of goods. In addition to sheep farming, the primary activity has traditionally been livestock (for milk and meat) and crops, such as grass and cereals (mainly used as animal feed). The farm structure is dominated by relatively small family farms, many of which are in remote locations operating under difficult conditions. Norway is a net agro-food importing country: agro-food imports represent around 9% of total imports, while agro-food exports represent 0.8% of total exports. Figure Main economic indicators, Figure Agro-food trade, % Real GDP growth Unemployment rate Inflation rate Billion USD Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Norway International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.4% Population (million) % 0.1% Land area (thousand km 2 ) % 0.5% Agricultural area (AA) (thousand ha) % 0.04% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) % 0% 100% 200% 300% Share of arable land in AA (% ) Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en * 174

175 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 452. Over the period, agricultural output is estimated to have increased at a slow annual pace. Variable inputs and fixed factors of production have declined, while total factor productivity is estimated to have increased at a rate that is comparable to the world average. Overall, pressure from agriculture on the environment has decreased, as is shown by the decrease in nutrient surpluses per hectare and stable or declining air emissions from agriculture. The lowering of nutrient surpluses has reduced the risk of environmental pressures on soil, water and air. This reflects both improvements in nutrient use efficiency by farmers and slow growth of agricultural production. Figure Composition of agricultural output growth Figure Composition of agro-food trade, % 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 1.8% -1.0% -0.5% Norway 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Exports % Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Norway Imports Primary for consumption Primary for industry Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Norway Energy consumption GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 0.34% 1.76% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% * 175

176 Development of support to agriculture 453. Norway has made rather modest progress in reducing the level of support while a more pronounced shift in the composition of support has taken place. Commodity based support (market price support and payments based on output) now represents around half of total support. Despite the reduction in price distortions, prices received by producers are on average 80% above world market prices. There is a rather even distribution of support across commodities. PSE as % of receipts (%PSE) Support to farmers, measured as a share of gross farm receipts (%PSE) has been reduced only moderately by 10 percentage points, from 70% in to 60% in The %PSE has increased in the last few years, from 57% in 2013 to around 60% in 2014 and 62% in It remains more than three times higher than the OECD average % 70% 66% Potentially most distorting support as % of PSE The share of the potentially most production and trade distorting forms of support (based on output and variable input use without input constraints) in the PSE has decreased by 28 percentage points, but it is still more than half of total support. Market price support is the main component of the most distorting support % 65% 53% Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers were 1.8 times higher than those on the world market in This is a significant reduction relative to when the prices were 4 times higher. NPC s are generally higher for livestock products TSE as % of GDP Total support was 3.5% of GDP in , declining to 0.9% by The share of expenditures on general services (GSSE) in total support (TSE) has increased, from 4% of TSE in to 8% in % 2.0% 3.5% +5.4% PSE Decomposition of change in PSE, 2014 to % MPS +0.03% BUDGETARY PAYMENTS Price Gap Quantity +6.6% -1.2% The level of support increased in 2015, mainly due to increased market price support for milk, oats and pig meat brought about by higher domestic prices which more than offset higher border prices due to depreciation of domestic currency against the US dollar. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Oats Milk Beef and veal Pig meat Poultry Sheep meat Eggs Wool 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. Single Commodity Transfers accounted for 60% of the total PSE. The share of the SCT in the commodity gross receipts was higher for livestock products (with the exemption of sheep meat). 176

177 Description of policy developments Main policy instruments 454. Agricultural policy in Norway is based on the White Paper No. 9 ( ) On Norwegian agriculture and food production, approved in April 2012, which declares its four main objectives: food security; agriculture throughout all of Norway; creating more added-value; and sustainable agriculture The principal policy instruments supporting agriculture include border measures, domestic market regulation and budgetary payments. Key parameters of agricultural policy, including certain product prices, support measures, welfare schemes, and implementation issues, are negotiated annually between the Government and the two nationwide farmers organisations. The system is underpinned by Norway s border protection measures as well as domestic market regulation based on the Marketing Act. The Act covers certain meats (beef, mutton, pork and poultry); milk, butter and cheese; eggs; cereals and oilseeds; potatoes, vegetables, fruit and berries; and fur skins Market price support, in the form of wholesale target prices, is provided for milk, pork, grains, some fruits and some vegetables. These target prices and the budgetary framework for payments to farmers, are negotiated annually between the government and farmers organisations. Marketing fees are collected from producers to finance marketing activities dealing with surpluses, including export subsidies for livestock products. Export subsidies of processed products to the EU and marketing activities for horticultural products are financed directly by the government. Norway has gradually reformed its target price system and for beef, lamb, eggs and poultry target prices have been phased out Milk production quotas were introduced in 1983 and a system of buying and selling quotas was introduced in Most of Norway s tariff-rate-quotas were eliminated in 2000 when the WTO bound tariff rates became equal to the in-tariff quota rates. Tariffs for most products are set between % although there is a system of open periods for imports at reduced tariff rates when domestic prices rise above threshold levels Various direct payments to farmers, including area and headage payments as well as payments based on product quantities (meat) continue to be provided. Many of these payments are differentiated by region and farm size in order to provide adequate income support across all type of farms and regions. Environmental levies on agricultural pesticides are applied Agricultural policy reform is on the present government s agenda aiming at fostering the efficiency of the sector by reducing import barriers, changing inheritance and land-use laws. Plans are to abolish, to the degree possible, any limits on production quotas and licences that prevent full usage of capacity in individual and cooperative farms. The Government also aims for a clearer distinction between agricultural and regional policies. A White Paper will be presented to the Parliament by the end of Domestic policy developments in In May 2015, an agreement was reached between the government and one of the two farmers organisations involved in the agricultural negotiations. The main changes in the agreement were: i) an increase in target prices with a total budgetary effect of NOK 315 million (USD 39 million) from 1 July 2015; ii) an increase in budgetary support of NOK 45 million (USD 6 million)from 2015 to 2016; iii) further streamlining of support programmes, by making a reduction to their number; and iv) increased support for the investments and development programme, and the establishment of a new programme for facilitating the cultural landscape in some counties. As a result of this agreement, several working groups are working on policy changes in different areas, such as the further simplification of programmes, climate change policies in agriculture and recruitment to the sector. 177

178 461. For 2015, the actual production possibilities in the milk sector were equal to the basic quotas multiplied by a factor of For the quota year starting 1 January 2016 and ending 31 December 2016, both the basic quotas and the actual production possibilities were kept at the 2015 level The National Environmental Programme contains the main agri-environmental measures, such as the Acreage Cultural Landscape Support, payments to extensive grassing, payments for grazing animals, organic agriculture, Regional Environmental Programmes (REP) and special environmental measures in agriculture. In 2016, the budget for the REP was decreased, to NOK million (USD 53 million). The role of the REP is increasing, with programmes now having a stronger environmental focus with more measures directed towards local environmental issues The rural development aspects of Norwegian agricultural policy include several programmes designed to stimulate innovation and the establishment of alternative businesses on farms and alternative employment in rural areas. Most of the funding is financed through the Agricultural Development Fund. For 2015 and 2016, the proposal of the total allocation of funds for rural development (on the Agricultural Agreement) was around NOR million (USD 150 million), for each year A government proposal to annul the price regulation in the real-estate market for agricultural and forestry land and restricts corporate ownership according to the Concession Law was proposed to the Parliament. The Parliament, however, rejected the proposal in February At the same time the Parliament asked the government to prepare some amendments in the property regulations, for example an exemption from price regulation for acquisition concerning forest properties A White Paper on supporting entrepreneurship and business developments, especially within the areas of local food, agro-tourism, green care and bioenergy was presented to the Parliament in June Trade policy developments in Article 19 of the European Economic Area (EEA) agreement provides that contracting parties will periodically carry out reviews of the conditions of their trade in agricultural products. Another round of these reviews was agreed in 2013, and started in February Further negotiations were agreed in 2013, and such talks were initiated in February The Parties exchanged requests in September Further meetings will take place in Within the European Free Trade Association (EFTA), Norway has negotiated 25 Free Trade Agreements with 35 partner countries. Free trade negotiations are currently being conducted between EFTA and India, Indonesia, Viet Nam, Malaysia, the Philippines and Georgia. Negotiations with Ecuador began in These Free Trade Agreements and negotiations include processed agricultural products and a range of primary agricultural products As from 1 January 2015, Norway unilaterally eliminated import duties on 114 agricultural tariff lines. Although these duties were low (and not of significant importance for the protection of Norwegian agricultural production), their elimination resulted in reduction of customs procedures and administrative costs At the WTO Ministerial Meeting in Nairobi on 19 December 2015, the Member States decided that if the developed countries (Norway, Canada and Switzerland) abolish export subsidies on products destined for the least developed countries, they would be permitted to provide export subsidies for processed products, dairy products and swine meat until the end of The Norwegian Government has made a recommendation (subsequently adopted in Parliament) that Norway will phase out all export subsidies for agricultural products by the end of

179 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 17. RUSSIAN FEDERATION Support to agriculture 470. Support to agricultural producers fluctuated over the long-term, but has remained at approximately the same level between 2012 and Nearly 85% of total support to agriculture (TSE) in was provided to producers individually (PSE), with the rest directed to general services for agriculture (12%) and to food wholesalers and processors (3%). Producer support overwhelmingly (95%) derives from market price support and output and input subsidies. The aggregate market price support, however, disguises strong variations in support across commodities: it represents a mix between the border protection for imported livestock products and sugar and taxation of exported grains and oilseeds. Livestock producers also benefit from domestic grain prices being below the world levels. Support to general services is relatively evenly distributed among the principal areas, however, the largest amount of resources is directed to the agricultural knowledge system. Figure Russian Federation: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Million RUB Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million RUB Panel B. Producer support estimate as % of gross farm receipts (%PSE), % Russia OECD Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), Main policy changes 471. The on-going State Programme for Development of Agriculture for entered its fourth year of implementation in The deteriorated macroeconomic situation led to several revisions of the Programme s initial financing targets. The allocations were increased for some of the sub-programmes, but 35. Complete budgetary information for 2015 was not available within the timeline for the preparation of this Report support estimates thus cover the period up to

180 reduced for others, investment grants were introduced as a new assistance, while the previous decision to cease certain investment credit subsidies was suspended. The sectors defined for priority support with the view to import substitution include milk and meat, greenhouse and early vegetables, seed potatoes, fruits and berries. The ban on agro-food imports from a number of countries imposed previously in the context of the Ukrainian crisis was extended. A Treaty on the Eurasian Economic Union (EAEU) came into effect with the Russian Federation as one of the parties. EAEU s activity in the agro-food area in was focussed on the harmonising of the sanitary and phytosanitary and food safety regulation of its member countries. Assessment and recommendations Agricultural policy formulated at the inception of the State Programme for Development of Agriculture for aimed at boosting the agricultural production and agro-food import substitution. The political context of the recent years has intensified country s import substitution orientation into a long-lasting self-sufficiency policy in agro-food area. Non-tariff border protection based on sanitary and phytosanitary and technical regulation grounds remains an active policy, in certain cases raising concerns among trading partners about application by the Russian Federation of undue trade restrictions. The government continued to focus on the cushioning of the effects of the current economic recession on the agro-food sector. Domestic policy has concentrated on increasing the flows of financial resources into agriculture, in particular to support investments in import competing sectors. A new emphasis has been put on the development of domestic seed production and pedigree livestock breeding to reduce dependence on imports of these agricultural inputs, as well as on the improvements in agro-marketing and food distribution infrastructure. A surge in food prices has activated the plans to establish an infrastructure for domestic food aid. Overall, distorting subsidy and import protection continue to prevail as policy instruments to achieve the stated goals. Substantial and sustained improvements in the competitiveness of agriculture are more likely to be achieved through prioritising investments in the sector s longterm productivity, such as R&D, knowledge transfer, infrastructure, plant and livestock health systems, and also through improving the living conditions in rural areas. 180

181 Table Russian Federation: Estimates of support to agriculture 181

182 Contextual information 472. The Russian Federation has the largest land area in the world and is a country with very diverse natural, economic, and social conditions. Economic growth decelerated in 2014 and GDP is estimated to have declined by nearly 4% in Agriculture contributes around 4% of GDP and 7% of employment. Agro-food products are an important, but a declining share of total imports. The country is one of the world s top importers of meat and is a large wheat exporter. Agricultural output has been recovering from a deep recession in the 1990s. The farm structure is dual, where commercial operations co-exist with small household units. These household producers are oriented mostly towards self-consumption and contribute roughly one third to total agricultural output. Over 25% of the population is rural, with many rural areas suffering decline and depopulation. Figure Main economic indicators, % Real GDP growth Inflation rate (right axis) Unemployment rate % Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Russia International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 4% Population (million) % 4% Land area (thousand km 2 ) % 21% Agricultural area (AA) (thousand ha) % 8% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. 3. Data listed 1995 refers to Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en * 182

183 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 473. Agricultural output growth in the Russian Federation since 2003 has been driven predominantly by the increases in Total Factor Productivity (TFP). The contribution to output growth of higher intermediate input use has been far smaller, while the use of primary factors has declined. Country s TFP growth has consistently been above the world average. The agro-food imports of the Russian Federation are focussed on supplying domestic final food consumption, while exports are largely destined to agroprocessors abroad. The share of agriculture in total energy use decreased significantly in the 2000s and is currently low compared to the OECD average. Agriculture also accounts for a relatively small, but slightly increasing share of total water consumption and country s water stress is by far lighter than it is across the OECD area. Figure Composition of agricultural output growth 4% 3% 2% 1% 0% -1% -2% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 2.3% 0.7% -1.5% Russia 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Russia Imports Exports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Russia Energy consumption n.a GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 2.33% 2.35% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison % Deviation from OECD average 1-100% 0% 100% 200% 300% * 183

184 Development of support to agriculture 474. Support to agricultural producers has historically fluctuated significantly, but remained at almost the same level between 2012 and Nearly 85% of total support to agriculture (TSE) was provided to producers individually (PSE), with the rest directed to general services for agriculture (12%) and to food wholesalers and processors (3%). Producer support overwhelmingly (95%) derives from market price support, output and input subsidies. Market price support represents a trade-off between border protection for imported livestock products and sugar and taxation of exported grains and oilseeds. PSE as % of receipts (%PSE) %PSE was at 15% of producer gross receipts in , below the OECD average and below the level observed in (18%). %PSE changed from 15% in 2012 to 14% in 2013 and back to 15% in % 18% Potentially most distorting support as % of PSE The share of the potentially most production and trade distorting forms of support based on output and unconstrained input use decreased slightly from 73% to 71% of the total PSE between and This in part reflects the replacement of some previous input subsidies by per hectare payments % 71% Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers were on average 9% above those observed on world markets in , compared to 8% in The aggregate NPC, however, disguises border protection for livestock products and sugar and taxation of exported grains and oilseeds TSE as % of GDP Total support to agriculture (TSE) as a % of GDP decreased from 2.6% in to 0.9% in as GDP grew more than total support. General services account for 13% of the TSE % 2.6% +27.6% PSE Decomposition of change in PSE, 2013 to % MPS -11.4% BUDGETARY PAYMENTS Price Gap Quantity +33.9% +5.1% The value of support rose in 2014, mainly due to increased market price support, which was partly offset by a decrease in budgetary transfers. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Oats Rye Sunflower Sugar Milk Beef and veal Pig meat Poultry Eggs Potatoes -40% -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The share of Single commodity transfers (SCT) in the PSE was 63% in

185 Description of policy developments Main policy instruments 475. The Russian Federation applies a range of price policy instruments. The main one is border protection, including through Tariff Rate Quotas and non-tariff measures. Border measures are in large part implemented within the framework of the Customs Union of the Eurasian Economic Union (EAEU). Domestic price regulation measures are also applied, such as market interventions. They can be implemented for grains, whereby the government can withdraw or purchase these products if the market price moves outside the established band between minimum and maximum prices. Prices at which market interventions are implemented, however, do not play the role of price guarantees. Restrictions on imports or exports can be imposed during the intervention periods. Grain intervention has been active since the 2008/09 season Payments based on output for marketed livestock products have been traditionally provided from regional budgets, but recently a new payment for milk was introduced, which is co-financed by the federal and regional governments. Concessional credit is one of the most important support instruments. Concessions take the form of subsidies to borrowers of loans on interest payments. The subsidy is set at a fraction of the central bank s refinancing rate, with this fraction varying by type of beneficiary and type of loan. In addition to interest subsidies, a range of subsidies for variable inputs are provided. Support is also provided through leasing of machinery, equipment and livestock at preferential terms. Per hectare payments is a new measure which replaced several previous nation-wide input subsidies. Agricultural producers also benefit from a number of tax preferences and concessions on repayment of arrears on federal taxes and social contributions The majority of support measures described above are implemented within a multi-year State Programme for the Development of Agriculture the country s main agricultural policy framework. It is based on the principle of support measure co-financing by federal and regional governments, with varying co-financing rates across the regions. In addition to support included in the State Programme, regions implement their own, strictly regional support measures The on-going State Programme entered the fourth year of implementation in It incorporates several sub-programmes on development of crop and livestock production, including two new ones introduced in 2015 (see below). Other sub-programmes relate to technical and technological modernisation; development of small farming; support for pedigree livestock breeding and seed production; development of wholesale and distribution centres and domestic food aid system; and development of financial and credit system. The last three sub-programmes are also new and are implemented as of The State Programme also includes two federal targeted programmes on rural development and on land improvement. Domestic policy developments in At its inception, the State Programme has been oriented at the 2010 Doctrine on Food Security. Reaching the self-sufficiency targets in key foodstuffs set in the Doctrine was stated as the Programme s primary objective. 36 The recent political context further strengthened the self-sufficiency orientation for agricultural policy in the Russian Federation. Agro-food import substitution has become an 36. These targets are set at not less than 80-95% and cover the following products: grains, sugar, vegetable oil, meat and meat products, milk and meat products, fish and fish products and salt. 185

186 overarching agricultural policy objective. The government s actions during the monitored period continued to focus on cushioning the impacts of a deteriorated macroeconomic situation, with a substantial slowdown of the overall economy, tightening of budgetary resources, and accelerated inflation. The rouble has been losing value against the US dollar in 2015 and early 2016; although this increased the competitiveness of local products domestically and internationally, it also fuelled inflation, raising costs of inputs and borrowing The government made amendments to the State Programme , aimed to support an accelerated import substitution for priority products and taking into account the deteriorated economic conditions. In December 2014, the overall State Programme budget was increased, new sub-programmes introduced and funds re-allocated within and between sub-programmes. The priority products for import substitution include milk and meat, greenhouse and early vegetables, seed potatoes, fruits and berries. The Programme s revisions also foresaw increased investments in marketing infrastructure and more support to seed production, crop selection and pedigree livestock breeding. The State Programme amendments in December 2014 translated into an additional federal funding of RUB billion (USD 9.8 billion) for , beyond RUB billion (USD 19 billion) of federal funds earmarked for this period in the original version of the State Programme. However, the revised financing targets of the State Programme were with a proviso that in view of macroeconomic uncertainty they may be further reviewed The government, indeed, subsequently issued several resolutions to adjust the annual financing targets for The overall federal financing for 2015 was increased by RUB 46.2 billion (USD 742 million) compared to the initial target, while the total annual budget was substantially reallocated across the sub-programmes. The federal funding was increased for the majority of subprogrammes for 2015, the increases varying within the range of 6% to 207%. At the same time, the spending was cut for the federal targeted programmes on rural development and on land improvement, and also the sub-programmes supporting greenhouse vegetable production and milk farming. Notably, the latter two are identified among the import substitution priorities. Another decision related to the funding of the State Programme in 2015 was the allocation of RUB 10 billion (USD 163 million) for the re-capitalisation of the large agricultural bank RosSelkhozBank and RUB 2 billion (USD 32 million) for the state agricultural leasing company RosAgroLeasing No complete information, including the federal and regional financing, on the actual implementation of these budget targets in 2015 is available at moment of writing (April 2016). In the deteriorated economic situation, the financing of the State Programme was reportedly restrained by the capacity of the regions to co-finance the federal funds. In order to receive the federal funding, regions are required to co-finance the federal part in the amount of at least 5% of that part The government intervened on grain markets government purchases were carried out in the 2014/15 season following the consecutive good crops and a de facto suspension of grain exports in late Between September 2014 and June 2015, 0.53 million tonnes of grain have been purchased. The interventions continued in 2015/16 with 1.7 million tonnes of grain purchased during this season Concessional credit is the largest producer support category of the State Programme, representing interest subsidies on short-term and investment credit. In 2015, this component accounted for nearly 50% of total federal allocations for the State Programme. Since the mid-2000s, the programme has substantially expanded in scope and scale. The total amount of interest subsidies (provided to all types of borrowers, all types of credit, and from federal and regional funds) rose from RUB 12 billion (USD 0.2 billion) in 2005 to approximately RUB 106 billion (USD 3.3 billion) in This reflects an increase in new lending over time, an accumulating stock of long-term loans maturing after two to fifteen years, and additional concessions granted as part of relief assistance during this period. 186

187 485. Regarding credit support in 2015, RUB 87 billion (USD 1.4 billion) were paid from the federal budget for subsidising interest on credit during this year. Around 91% of that amount was directed to subsidise loans for agriculture and development of market infrastructure and 9% to subsidise short-term loans to food processors. Although these figures do not include the regional co-financing, they broadly reflect the situation: for example in 2014, regional co-financing of interest subsidies comprised a relatively small share of the total (14%). Overall, interest subsidising could only partially cushion the high cost of credit, with agro-food borrowers facing less favourable lending conditions in 2015 compared with the period preceding the recession The policy orientation at the start of the State Programme , has been to downsize the new commitments to subsidise credit, in particular long-term loans. However, the pledge to accelerate import substitution and the sharp deterioration of lending conditions towards the end-2014 reversed prior plans. The decision to stop concessional investment loans for poultry complexes as of 2015, and for pig complexes as of 2017, was suspended. The subsidising of investment loans in these sectors will continue until 1 January 2019, with the focus on Trans-Ural, Siberian and Far East regions. It was also decided to raise the rate of federal contribution to interest subsidies on investment loans taken in Nevertheless, investment grants were introduced in 2015 as a partial shift away from subsidising long-term credit. Investors were enabled to receive a 20% or 30% grant on the amount of investment depending on the type of project, increasing to 25% or 35% for the Far East region. These grants are currently available for setting-up or modernising genetic centres for milk cattle; construction of potato, vegetable and fruit storages and greenhouses; and investments in milk farming. In March 2015, the Ministry of Agriculture published the list of 464 investment projects to be supported through investment credit subsidy or investment grants. The selection was focussed on the activities prioritised for import substitution: almost three quarters of the selected projects concern milk, pig meat, poultry and beef production, the remaining are for the storage and processing of horticultural products In view of rapid rises in input prices the government brokered an agreement with fertiliser manufacturers at the end of 2014 to sell the fertilisers domestically with a 10% to 15% mark-down on their export prices. This concession had been gradually increased up to 30% by March The fertiliser price agreement was in place throughout In February 2016, a more loose arrangement between the Russian Association of Fertiliser Manufacturers and the Russian Agro-Industrial Union was signed for the period of one year, with a recommendation to apply appropriate mechanisms for limiting fertiliser price increases in the event of strong changes in the macro-economic situation Households spent around 34% of their final consumption expenditures on food in End-year food price inflation was 15% in 2014 and 14% in 2015 and continued to be government s concern. Administrative measures across the regions were applied to control wholesaler and retailer mark-ups. Antimonopoly procedures were used, with large retail chains in particular coming under the spotlight. In January 2015, a number of large food retailers announced a two-month voluntary moratorium on increases of mark-ups on certain food items. An organisation of a new food aid system emerged as a new component in the original version of the State Programme the rise of food prices led the government to regard it as an immediate priority. This component foresees the organisation of food wholesale and distribution centres across the country. These centres, beyond usual functions, are to purchase and distribute products to retail outlets engaged in domestic food aid programmes. RUR 1.0 billion (USD 39 million) were initially allocated in 2015 as grants to the investors in such centres, but in the amended budget for 2015 this funding was reduced to RUR 0.3 billion (USD 5 million). 187

188 Trade policy developments in Meat imports into the Russian Federation are subject to tariff rate quotas (TRQ) on imports from the non-cis area. Upon WTO accession in July 2012, the Russian Federation maintained countryspecific quotas for fresh and chilled beef, frozen beef; and frozen boneless poultry cuts. No changes in the meat TRQ occurred during the monitored period, consistent with Russia s WTO commitments. Dairy products represent another of country s key agro-food imports. At WTO accession, import tariffs for milk products were reduced, and for certain groups are to be decreased further. The imports of sugar outside the CIS area traditionally face high border protection. In 2014, the amount of the levy for white sugar was adjusted according to WTO schedule, with no changes in import tariffs for either raw or white sugar in Some WTO members questioned the Russian Federation s applied tariffs for certain agricultural and manufacturing products as not being in conformity with the country s WTO commitments. In October 2014, the European Union initiated consultations with the Russian Federation, referring to the Russian Federation applying duties in excess of bound rates, in several different ways for certain agricultural products. A WTO panel was subsequently established in 2015, its final report to the parties due by mid-april The Russian Federation frequently resorts to non-tariff restrictions on agro-food imports, in particular with respect to livestock products. On the request of the European Union, a WTO panel was established in July 2014 on the adequacy of the Russian Federation s import ban on EU live pigs, their genetic material and pig meat introduced over concerns on the of African Swine Fever cases. The WTO dispute settlement panel is expected to issue its final report to the parties by early April The ban on agro-food imports from the European Union, the United States, Canada, Australia, and Norway was extended until 6 August It was initially introduced on 7 August 2014 for a period of one year on the official grounds of security and after the imposition of sectoral sanctions on the Russian Federation in the context of the Ukrainian crisis. The ban was later expanded to include also Albania, Montenegro, Iceland and Lichtenstein which joined the sanctions on the Russian Federation. The prolongation of the agro-food import ban by the Russian Federation followed the decision of the European Union in June 2015 to continue sectoral sanctions on the Russian Federation. The list of products prohibited for imports into the Russian Federation has not been substantially changed: it continues to include meat, milk products, fruits and vegetables, prepared foods, and fish. However, since the first introduction of the ban, lactose free milk and products from it, seed potatoes and seeds of some other crops, young fishes of salmon and trout, and certain molluscs, have been excluded Another development concerned the trade relations with Ukraine. The Russian Federation announced a suspension, as of 1 January 2016, of the free trade with Ukraine under the Agreement on Free Trade in the Commonwealth of Independent States (CIS) Area. This move was related to the coming into full effect of a Deep and Comprehensive Free Trade Area (DCFTA) between the European Union and Ukraine which forms a trade component of the Association Agreement between these parties. Between April 2014 and 31 December 2015, Ukraine maintained the pre-dcfta regime for EU imports and a free trade with the Russian Federation. This was an interim arrangement following the Russian Federation s claim that the DCFTA, due to Ukraine being also a part of the CIS free trade area, poses risks to the Russian Federation s economic interests. Several rounds of trilateral negotiations in the course of 2015 to find further compromise beyond the end-2015 failed, followed by the Russian Federation s suspension of the free trade regime with Ukraine. On the grounds that Ukraine implements the DCFTA regime in its trade with the European Union, a separate resolution by the Russian government extended to Ukraine the same ban on imports of agro-food products as has been imposed on the European Union. This ban became 188

189 effective for Ukraine on 1 January Ukraine responded by prohibiting a broad range of agro-food imports from the Russian Federation as of 10 January Amid acute developments in bilateral political relations in late 2015, the Russian Federation imposed a ban on imports of a number of agro-food products from Turkey as of 1 January This ban covers certain groups of fruits, vegetables, specific poultry products, and salt The country s grain export regulations change between restriction and stimulation in response to fluctuations in the domestic supply of grains and in food prices on the domestic market. Considerable depreciation of the rouble towards the end of 2014 acted as strong export stimulus, raising government s concerns about the outflow of grain from the domestic market and the impact this may have on food prices. The government intervened to limit grain exports, which were effectively restrained since the late 2014 by administrative means, followed by an export duty on food wheat as of 1 February 2015 (15% plus EUR 7.50 per tonne but not less than EUR 35 per tonne). Grain traders and producers questioned the appropriateness of this measure, particularly in the situation of a relatively high season s supply. The duty was lifted on 15 May 2015, but re-instated at the beginning of the new crop season on 1 July 2015 using a new formula. It was set at 50% minus RUB (EUR 87) per tonne, but not less than RUB 50 (EUR 0.8) per tonne. On 1 October 2015, the wheat export duty was reduced: the deductible portion of the duty was increased to RUB (EUR 91) per tonne and its minimal amount reduced to RUB 10 (EUR 0.14) per tonne, while a zero duty was set for durum wheat and planting seeds of other types of wheat Since 1992, export duties have been applied on oilseeds. As part of WTO commitments, the country implemented subsequent oilseeds duty reductions, the most recent one in September Export duties on sunflower were brought down to 9.88% (but not less than EUR per tonne) compared to a bound rate of 6.5% (but not less than EUR 9.75 per tonne). Other reductions have been implemented according to the schedule: rapeseed duties brought down to a bound rate of 6.5% (but not less than EUR 11.4 per tonne) and for soya beans set at zero (an export duty for mustard seed was set at zero in the first year of accession in 2012) A temporary ban on exports of hides and skins of cattle and horses has been in place between 25 May and 25 November 2015, following a similar ban for 6 months which expired on 1 April of the same year In the area of regional economic integration, a Treaty on the Eurasian Economic Union (EAEU) came into effect in 2015, with the Russian Federation, Belarus, Kazakhstan as founding members, subsequently joined by Armenia and Kyrgyzstan. Beyond free trade and common customs territory, EAEU foresees free movement of capital and labour and a co-ordinated, agreed upon, or common economic policy in member countries. During 2015, the EAEU has been active in SPS and technical regulation sphere, including the approval and amendment of plant quarantine rules and standards, sanitary and epidemiological surveillance, food safety, food labelling, food quality tracking system, and other issues The Russian Federation, as a participant of the EAEU, was the signatory of the bilateral Free Trade Agreement with Viet Nam in May EAEU is also examining the prospects for FTAs with India, Israel, Egypt, Iran and Thailand. In 2015, EAEU issued a decision to start the talks on an agreement for trade and economic cooperation with China. 189

190 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 18. SOUTH AFRICA Support to agriculture 501. South Africa reduced its support to agriculture during the 1990s and support to farms has remained below 5% of gross farm receipts since 2010 (Figure 2.18). Total support estimate to agriculture (TSE) was around 0.3% of GDP in Direct support to farms (PSE) is the largest part of the TSE. Support based on output (including MPS) and input use is the most important element. As for the General Services Support Estimate (GSSE), the main elements are payments financing the Agricultural knowledge and innovation system and expenditure on infrastructure The level of price distortions is low and domestic prices are almost aligned with world price levels, except for sugar and in recent years, milk and wheat. Most of the budgetary payments are related to the implementation of the land reforms and assistance to emerging farmers, and to general services for the whole sector. Figure South Africa: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Panel B. Producer support estimate as % of gross farm receipts (%PSE), Producer Support Estimate General Services Support Estimate Million ZAR Knowledge 40 % South Africa OECD Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million ZAR Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), Main policy changes 503. Most of the policy measures and direct payments continue to be targeted to the smallholder subsector. The Government provides post settlement assistance, including production loans to new and upcoming farmers (mostly operating on redistributed or resituated land). Changes were made to policies related to land redistribution. Under the amended regulation, all the newly acquired land has been registered as state owned on the Agricultural Land Holding Account and provided to selected beneficiaries 190

191 under lease contracts. The beneficiaries may dispose of the land after an agreed lease period, provided the project is economically viable In response to the severe droughts in 2014 and 2015, the Government reprioritised ZAR 330 million from programmes supporting agriculture for FY 2015/16 to drought relief expenditure, and in February 2016, the National Treasury announced that an additional ZAR 1 billion (USD 86 million) will go towards assisting drought relief. The money will go mostly towards water provision, agriculture support, the provision of transport, and feed for livestock. In most recent years South Africa has been increasing its border protection for some agricultural commodities (sugar, wheat, poultry, and potatoes). South Africa lifted its ban on meat imports from the US in order to retain preferential access for its farming goods to the US market granted under the African Growth and Opportunity Act (AGOA). Assessment and recommendations The current relatively low level of Market Price Support for South African agriculture is the result of sharp policy reforms implemented in the mid-1990s. Policy changes included deregulating the marketing of agricultural products, liberalising domestic markets, and reducing barriers to agricultural trade. These reforms reduced market price support and budgetary support to commercial farming resulting in a substantial reduction of total support to agriculture. Increased budgetary spending went to financing the land reform process and supporting its beneficiaries (subsistence, smallholders and commercial farmers). The main agricultural policy developments and the main challenges in most recent years are related to the implementation of the land reform programme and creating an enabling environment for new farmers. During , policies that aimed to ensure the viability of new entrants and to restore and recapitalise failed projects continued to be implemented with increased budgetary spending. The main challenge into the future continues to be implementing and effectively targeting support programmes that are tailored to the needs of emerging farmers. Involving private stakeholders (experienced commercial farmers) in the support programmes in the form of privatepublic partnerships is an efficient way to engage the available resources and address the current weaknesses in supporting programmes and services from public authorities. The pace of land reform should be closely linked to the development of the enabling environment for the beneficiaries of land reform; otherwise land redistribution by itself cannot deliver the expected outcomes, such as improving the welfare of the black rural population, increasing food security in rural areas and developing a viable commercial sector. 191

192 Table South Africa: Estimates of support to agriculture 192

193 Contextual information 505. South Africa is an upper middle income country. However, income inequality is severe and poverty persists. It has a relatively moderate level of inflation but a persistently high rate of unemployment. The GDP growth rate has declined since The importance of agriculture in the economy is relatively low with a share of 2.6% of the GDP, and 5% of employment. South Africa is a net exporter of agro-food products. The share of agro-food exports in total exports is around 11%, while the share of agro-food imports is around 7%. South Africa has a large area of agricultural land, but only 14% is arable (the remaining area is mostly semi-arid pastures). There is a highly dualistic farm structure, with a welldeveloped sector of commercial farms and a large number of smallholder and subsistence farms. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators South Africa International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.9% Population (million) % 1.5% Land area (thousand km 2 ) % 1.6% Agricultural area (AA) (thousand ha) % 3.6% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en * 193

194 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 506. Total factor productivity (TFP) growth is driving agricultural output growth in South Africa. TFP growth averaged 2.5% between 2003 and 2012, well above the world average. The growth of primary factors and intermediate inputs had almost no effect on output growth. TFP has slowed in the recent decade. South African agriculture is coping with scarce water resources in most of the agricultural areas. Although 60% of water use is in agriculture only few regions have irrigated land. Agriculture s share in energy use has declined, and has remained below the OECD average. Figure Composition of agricultural output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 2.5% 1.7% 0.4% 0.3% 0.5% -0.2% South Africa World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators South Africa Imports Exports Primary for consumption Primary for industry Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD South Africa Energy consumption n.a GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 3.01% 2.49% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator International comparison n.a. % Deviation from OECD average 1-100% 0% 100% 200% 300% * 194

195 Development of support to agriculture 507. South Africa has a relatively low level of support of around 3% of farmer s receipts in The relatively high share of the most distorting forms of support has to be interpreted against the low level of support as measured by the PSE. The level of price distortions is low and in recent years domestic prices are almost aligned with world price levels (except sugar, dairy and wheat), as documented by the Nominal Protection Coefficient. Most of the budgetary payments are related to the implementation of the land reform and assistance to emerging farmers, and to general services to the whole sector. PSE as % of receipts (%PSE) The level of support as measured by the percentage PSE has substantially declined and remains relatively low. At around 3% in , it is well below the OECD average of 17%. Following a slight drop by 0.3 percentage points in 2014, the share of support on total farm receipts increased by 1.2 percentage points to reach 3.8% in % 3% Potentially most distorting support as % of PSE The share of the most production and trade distorting forms of support (based on output and unconstrained input use) has declined but remains relatively high at 76%. However, this relatively high share is to be interpreted in the context of the low overall level of support % 97% Ratio of producer price to border price Producer Nominal Protection Coefficient The relatively low level of price distortions is maintained and the level of domestic prices was almost aligned to world price levels in , as measured by the NPC. The NPC was highest for sugar, followed by milk and wheat TSE as % of GDP The total support represented 0.3% of GDP in (less than half of the OECD average). The share of the general services in the total support estimate was around 40% over the same period % 1.0% +64.3% Decomposition of change in PSE, 2014 to 2015 PSE +59.2% MPS +5.2% BUDGETARY PAYMENTS Price Gap Quantity % The level of support increased in 2015 mainly due to a rise in Market Price Support. This was mostly due to increased price gap reflecting the drop in world prices. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Sugar Milk Beef and veal Pig meat Poultry Eggs -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. In , Single Commodity Transfers (SCT) represented 55% of the PSE. The share of the SCT in the commodity gross farm receipts was the highest for sugar 24%, 6% for milk and 4% for wheat. It was close to zero for the remaining commodities. 195

196 Description of policy developments Main policy instruments 508. In the mid-1990s, substantial reforms reduced state intervention in agricultural markets, which led to a stronger market orientation of the sector. Under the current system, there are no domestic market support interventions and no export subsidies applied. Other policy instruments used are input subsidies, mainly in the form of diesel rebate; programmes supporting new farmers benefiting from land reforms; and general services provided to the sector, mainly research, extension and inspection services. The National Land Care Programme (NLP) is a community-based and government supported approach promoting sustainable management and use of natural agricultural resources The key Government bodies implementing these policies are the Department of Agriculture, Forestry and Fisheries (DAFF) and the Department of Rural Development and Land Reform (DRDLR). The National Agricultural Marketing Council (NAMC), a national public body, which was established through the Marketing of Agricultural Products Act. No 47 of 1996, to provide the department with strategic advice on agricultural marketing issues; it undertakes investigations on agricultural marketing and marketing policy; and coordinates the implementation of all statutory measures implemented by the various agricultural industries. The DAFF approved Agricultural Policy Action Plan (APAP) in March 2015, for a 5-year period ( ), implemented in collaboration with DRDLR. It is aligned with the National Development Plan 2030 of the government, and plans to stimulate the growth of the agricultural sector and create jobs through an export-led and import reduction strategy. The focus is also on better integrating small/medium rural farmers into market and food processing activities The Land reform, launched in 1994, is the key policy issue related to the agricultural sector. The main objectives of the Land reform are to redress past injustices, foster reconciliation and stability, support economic growth, improve household welfare and alleviate poverty in rural areas. Land restitution, land redistribution and land tenure reform are the main elements of the land reform. During the process of implementing the land reform a range of programmes (Comprehensive Agricultural Support Programme; Illima/Letsema projects; Micro-agricultural Financial Institutions of South Africa MAFISA) were implemented to support activities creating an enabling environment for the previously disadvantaged farmers (subsistence, smallholders and commercial), such as capacity building, provision of appropriate information services and infrastructures A review of the Land redistribution for agricultural development (LRAD) projects indicated that a number of projects implemented are not economically viable. The DRDLR amended the land reform regulation in order to rationalise the land redistribution process and to assist the vulnerable projects. The Agricultural Land Holding Account (created in 2009) is responsible for land acquisition and, through the Recapitalisation and Development Programme, for recapitalisation and development of distressed land reform projects The Integrated Food Security Strategy (IFSS), introduced in 2002, is based on public and private civil society partnerships and focuses on household food security as the building block for national food security. One of the strategic approaches is to increase household food supplies by providing production support services to households own food production. The food security objective is further supported by Fetsa Tlala integrated food production initiative (introduced in 2013), which is aimed at production of staple foods on fallow land with agricultural potential in communal areas The Comprehensive Rural Development Programme (CRDP), launched in 2009, is providing support for the development of rural areas through two main programmes, both of them related to the 196

197 agricultural sector: The Rural Infrastructure Development (RID) subprogramme promotes investment in social rural infrastructure. Expenditure increased significantly due to the increase in funding for projects providing access to basic services, particularly sanitation, irrigation and roads; The Rural Enterprise and Industrial Development (REID) subprogramme provides assistance in the coordination and facilitation or rural enterprise development, industrial development and support to rural communities to produce their own food South Africa is a founding member of the Southern African Customs Union (SACU). 37 This is a full customs union, with a common external tariff. In 1994, South Africa became a member of the Southern African Development Community (SADC). 38 For the implementation of the FTA, the SADC incorporated the principle of asymmetry: A phase-down (started in 2000) of SACU tariffs in five years (by 2005); and those of other SADC countries to be completed in 12 years, i.e. by The SADC free trade agreement (FTA) has now been fully implemented. Domestic policy developments in 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 Most of the policy measures continue to be targeted to the smallholder sub-sector. The DAFF and the DRDLR provide post settlement assistance including production loans to new and upcoming farmers (mostly operating on redistributed or resituated land). Several programmes are implemented to support those farmers in order to assist them to develop commercially viable businesses. The Comprehensive Agricultural Support Programme (CASP) focuses mainly on providing support in the following areas: On and off-farm infrastructure and production inputs; targeted training, skill development and capacity building; marketing and business development and support; information and knowledge management; technical and advisory services, regulatory services and financial services. Overall, the budgetary expenditure financing CASP were ZAR million (USD 168 million) in FY and the sum budgeted for FY 2015 is ZAR million (USD 142 million). The Ilima/Letsema Programme was implemented in 2008/09 to increase food production, particularly by the smallholder farming sector. The funds were transferred to provincial departments of agriculture to finance conditional grants for specific production projects such as upgrading irrigation schemes and other infrastructure and on farm investments to support production capacity. The budget allocation to the programme was as follows: ZAR 416 million (USD 51 million) in FY 2012; ZAR 440 million (USD 46 million) in FY 2013 and for FY 2014 the budgeted amount is ZAR 461 million (USD 42.5 million) As the majority of projects implemented within the land reform were not economically viable, the DRDLR amended the land reform regulation in order to rationalise the land redistribution process and 37. The SACU members are: Botswana, Lesotho, Namibia, Swaziland and South Africa. 38. The SADC member countries are: Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. 39. FY financial year April/March. 197

198 to assist the vulnerable projects. Under the amended regulation, all the newly acquired land has been registered as state owned on the Agricultural Land Holding Account and provided to selected beneficiaries under lease contracts. The beneficiaries may dispose of the land after an agreed lease period, provided the project is economically viable. The Land Reform Grants programme is no longer used to buy agricultural land and transfer it directly to select beneficiaries. Its funds are now financing, together with the Agricultural Land Holding Account, the Recapitalisation and Development Programme In order to scale-up land access, the Property Valuation Act (act 17 of 2014) introduced the function of the Office of the Valuer-General within the structure of the DRDLR. The intention is to introduce just and equitable valuation of land identified for restitution and provide valuations in support of offers to land purchase and expropriation. However, it remains unclear to what extent this gives power to the State administration to make decision about prices to be used for buying land or to compensate for land expropriations After the outbreak of the foot and mouth disease (FMD) in 2011, South Africa regained its FMD free status in February However, there are still some agricultural sectors that have not recovered from the impact of losing the FMD free zone status. South Africa is still negotiating market access of game meat to the EU and beef to the Middle East countries The droughts in 2014 and 2015, related to the El Niño phenomenon, were the most severe since This has reduced substantially both crop production (including the main staple food white maize) and livestock production. The reduction of herds, due to a lack of fodder and water, resulted in a short term increase in meat production and a reduction in prices for cattle for slaughtering. Despite accumulating stocks of maize in years preceding the droughts, South Africa is likely to import around 5 million tonnes of maize in In reaction to the drought, the DAFF reprioritised ZAR million from the CASP and Illema Funds, and ZAR 66.4 million from the Land Care Fund for FY 2015/16. The DAFF made also a request to the National Treasury for additional funds to further assist the farmers. In February 2016, the National Treasury announced that ZAR 1 billion (USD 86 million) will go towards assisting drought relief. The money will go mostly towards water provisioning, agriculture support, the provisioning of transport and feed for livestock. Trade policy developments in Import protection for agricultural and food products is based on specific and ad valorem tariffs. Tariff rate quotas (TRQs) exist for a range of agricultural products under the WTO minimum market access commitments, with tariffs at 20% of the bound rates. In most recent years South Africa has been increasing its border protection for some agricultural commodities (sugar, wheat, poultry, and potatoes). For substantially all trade, preferential tariffs are granted to imports from the EU under the Trade, Development and Co-operation Agreement (TDCA). A Southern Africa Development Community (SADC) group consisting of SACU plus Mozambique negotiated an Economic Partnership Agreement with the European Union that will replace the TDCA and provide some increased market access to South Africa when implemented. Equally, imports from SADC countries outside the SACU are duty free, with very few exceptions Regional integration and an increase in intra-africa trade is a high priority for South Africa. Based on a decision by Heads of State and Government, SACU, as part of the SADC, is engaging the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) in the creation of the Tripartite Free Trade Area (TFTA). Building on the TFTA discussions, discussions on 198

199 establishing a Continental Free Trade Area (CFTA) have commenced under a decision by Heads of State of the African Union The zero import tariffs for maize (applied since 2007) continued in In March 2015, South Africa increased its import tariff on wheat from ZAR 157 (USD 13) per tonne to ZAR 461 (USD 38) per tonne. In February 2015, South Africa imposed anti-dumping duties on frozen bone-in chicken portions originating in or imported from a number of firms in Germany, the Netherlands and the United Kingdom A trade concern between the United States and South Africa followed the ban of US imports of pork (sanitary reasons) and poultry (anti-dumping measures) to South Africa. In January the US administration declared that it would suspend South Africa s preferential access for agricultural products under the African Growth and Opportunity Act (AGOA) if it failed to implement an agreement with the US on meat trade. Such an agreement was reached and, following the first shipments of meat to SA, the US administration confirmed in March 2016 that South Africa will retain preferential access for its farming goods to the US market. Losing access guaranteed under AGOA would have hurt mostly the SA citrus, macadamia nuts and wine industries. 199

200 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 19. SWITZERLAND Support to agriculture 526. Switzerland has progressively reduced its support to agriculture but the change is relatively moderate and support remains high in terms of its share on gross farm receipts, which is three times above the OECD average (Figure 2.19). Total support estimate to agriculture (TSE) was around 1% of GDP in the most recent years. The direct support to farms (PSE) is the dominant part of the TSE. Support based on output (including MPS) and input use is the most important element of the support. The main element of the General Services Support Estimate (GSSE) is payments financing the Agricultural knowledge and innovation system, which is almost a half of the GSSE expenditure One of the main components of support provided to Swiss farming is market price support (MPS) resulting from important trade barriers applied at the border. Over the analysed period the MPS has been reduced from 80% to around 50% of total support to farmers. Also the level of price distortions has been significantly reduced, although domestic prices were on average 60% above world prices in Switzerland also provides important direct payments to farms (all subject to environmental crosscompliance) in the form of payments per area to secure food supplies, payments to maintain farming in less favoured conditions and in the form payments to farmers who voluntarily apply stricter farming practices related to environmental and animal welfare objectives. The role of the direct payments has been increasing over time and while it represented around 20% of total support in the 1980s it has increased to around 50% in the current years. Figure Switzerland: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Consumer subsidies General Services Support Estimate Producer Support Estimate Million CHF Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million CHF Panel B. Producer support estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Switzerland OECD 200

201 Main policy changes 528. Switzerland adopted a new policy framework for the period (Politique Agricole ). The main change is the suppression of general area payments and reallocation of payments more closely related to specific objectives (agricultural practices) complemented by a system of transition payments to make the reform socially acceptable. Although the structure of the programmes providing direct payments is set for the whole period and the yearly budgeted amount is stable, there were important shifts within those payments in 2015 (second year of the implementation of AP 2017). Some payments, mainly to contribute to landscape quality and biodiversity have increased, while the transitional payments were reduced. On the other side, there were no further reforms to the border measures and the protection remains relatively high. The export subsidies for selected processed products were increased in 2015 from the budgeted CHF 70 million to CHF 95.6 million, to compensate for a sharp strengthening of the CHF related to the end of intervention of the Swiss Central Bank. Assessment and recommendations The removal of milk price controls, together with the elimination of export subsidies on primary agricultural products and the reduction of some tariff barriers have a potential to improve economic efficiency of the sector. Further reduction of import barriers and the elimination of the export subsidies to processed products should be considered to further reduce the burden to consumers and interference with markets. Security of food supply should be sought through a more competitive agriculture rather than by direct payments. Much, but not all, of Swiss farming occurs in difficult natural conditions and support policies maintain production where it would not otherwise occur. A better distinction could be made, though, between policies that address market failures (the provision of positive externalities and public goods as well as the avoidance of negative externalities), and those that address income problems. Post 2017, the focus should be on further developing a set of better targeted direct payments to meet the various societal concerns and to further reduce border protection in order to meet the declared (and sometimes conflicting) objectives at the lowest costs to consumers and taxpayers. This may result in a reduced amount of total direct payments to farms. Instead some of those payments may be redirected to general services type support (e.g. knowledge transfer) in order to strengthen the productivity of the sector. Switzerland has made great progress in reducing environmental pressures from agriculture. For some objectives such as sustainable use of resources and animal welfare the existing regulations could be made more stringent, while animal welfare and environmental compensation payments can be reduced. In practical terms current cross compliance requirements can be incorporated into mandatory regulation, which then provides a new baseline for more stringent cross-compliance requirements linked to support payments. 201

202 Table Switzerland: Estimates of support to agriculture 202

203 Contextual information 529. Switzerland is a small open economy with a high GDP per capita and relatively low inflation and unemployment. The relative importance of agriculture in the Swiss economy is low with its share in domestic product below 1%, while its share in employment is at around 4%. This is mainly due to highly developed industrial and services sectors in the economy. The farm structure is dominated by relatively small family farms. Hills and mountain farming areas are used for extensive milk and meat production. Arable land represents 26% of total agricultural area. Switzerland has consistently been a net agro-food importer; its share of agro-food imports in total imports is around 5%, while the share of agro-food exports in total exports is around 3%. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Switzerland International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.6% Population (million) % 0.2% Land area (thousand km 2 ) % 0.1% Agricultural area (AA) (thousand ha) % 0.1% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Notes: * or latest available year. 1. Relative to the total of all countries covered by this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en 344% 351% * 203

204 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 530. Total factor productivity (TFP) growth is driving agricultural output growth in Switzerland. TFP growth averaged 1.5% between 2003 and 2012, just below the world average, and output growth averaged 0.7%, due to a decline in variable input. TFP has slowed slightly in the recent decade. Swiss agriculture benefits from relatively abundant water resources (4% of the arable area is irrigated). Nutrient surplus intensities have declined moderately but remain above the average for OECD countries, as are GHG emissions. Agriculture s share in energy use has declined and is below the OECD average. Figure Composition of agricultural output growth 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 1.5% -0.8% -0.1% Switzerland 1.7% 0.4% 0.5% World Fixed factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Switzerland Imports Exports Primary for consumption Primary for industry Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Switzerland Energy consumption GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 1.65% 1.46% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison 3 7 % Deviation from OECD average 1-100% 0% 100% 200% 300% * 204

205 Development of support to agriculture 531. Switzerland has progressively reduced its support to agriculture but the change is relatively moderate and support remains high in terms of its share on gross farm receipts, which is more than three times above the OECD average. The level of price distortions has been more significantly reduced, although domestic prices remain on average 60% above world prices. Budgetary payments represent around half of the support to farms and are mostly provided in the form of area payments and headage payments. The share of payments targeted towards environment and animal welfare is steadily increasing. PSE as % of receipts (%PSE) Switzerland has reduced its support to farmers by 21 percentage points between and Despite this gradual reduction, overall support remains more than three times higher than the OECD average of 17%. After an increase of seven percentage points in 2014, the %PSE increased by another six percentage points in 2015 to reach 62% of gross farm receipts. Potentially most distorting support as % of PSE Due to the changes in the form of support introduced during consecutive policy reforms, the most production and trade distorting support (based on output and variable input use without constraints) dropped from 90% in to around 50% of support to farms in % 66% 56% 91% 75% 52% Ratio of producer price to border price Producer Nominal Protection Coefficient The ratio of producer price to border price was substantially reduced over time. Overall, the prices paid to the farming sector were 61% above world prices in as measured by the NPC, a contrast with the 4.5 times higher domestic prices in The highest NPCs are for poultry and eggs. TSE as % of GDP Total support was 1.2% of GDP in and the expenditure on general services was around 10% of the Total Support Estimate % 4.6% % +11.3% PSE Decomposition of change in PSE, 2014 to % MPS -0.1% BUDGETARY PAYMENTS Price Gap Quantity +12.1% -0.7% The level of support increased in 2015, due only to an increase of the MPS. The MPS increase reflects the increased price gap, which is mainly due to the reduction of world prices in USD, which was partly offset by the exchange rate effect. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Rapeseed Sugar Milk Beef and veal Pig meat Poultry Sheep meat Eggs 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The Single Commodity Transfers (SCT) represented around 50% of the total PSE in The share of the SCT in the commodity gross farm receipt was the lowest for grains (around 20%) and the highest for poultry and eggs (around 70%). 205

206 Description of policy developments Main policy instruments 532. Although its share in the total support to farmers is decreasing, Market Price Support (MPS), reflecting the important trade barriers applied at the border, remains one of the main components of support provided to Swiss farming. The other components of support are the various direct payments provided to farmers Agro-food imports to Switzerland are regulated either by single tariffs or, for a number of products, by a combination of relatively low in-quota tariffs and high out-of-quota import tariffs within a system of Tariff Rate Quotas (TRQ). The latter, covers a number of basic agricultural and food products, in particular meat, milk products, potatoes, fruits, vegetables, bread cereals and wine. Since 1999, allocated TRQ volumes have been transferable from one importer to another. An auctioning system has been used to allocate some of the TRQs to traders. All export subsidies for primary agricultural products were eliminated by 1 January 2010, however export subsidies for some processed agricultural products were maintained to compensate for high prices of domestically produced agricultural inputs. There are also payments based on output related to milk production (milk used for cheese processing and milk produced without silage) and since 2008 an area payment for sugar beet replacing the system of subsidies to processors and related system of guaranteed prices to sugar beet growers (discontinued in 2008) Switzerland adopted a new policy framework for the period (Politique Agricole ). The policy reform focuses on a re-arrangement and improved targeting of the direct payment scheme, intended to improve the effectiveness and efficiency of the measures. The main change is the suppression of general area payments and reallocation of payments more closely related to specific policy objectives complemented by transition payments to make the reform socially acceptable. An important shift in the structure of payments is the replacement of general headage payments to ruminants by an area payment to pastures with a requirement for a minimal stocking density. Most of the animal welfare and agrienvironmental payments from the previous period continue to be applied under the various main categories of the new framework. The environmental cross-compliance conditions are also maintained in the new system of payments. The overall budgeted annual amount of these payments remains stable for the whole period around CHF 2.8 billion (USD 3.1 billion), which is around the same level as in the years preceding the implementation of the PA The revised direct payments scheme has seven categories, which are linked to the achievement of specific policy objectives and the provision of public goods: 1. Payments for ensuring food supplies (i.e. food-security payments): consist of area payments, with rates differentiated between the plain and hilly and mountain regions. 2. Farmland payments: are also area payments with a main function to maintain farming in especially difficult conditions and to maintain a cultivated landscape in mountainous areas and on alpine summer pastures; 3. Bio-diversity payments: targeted to specific outcomes or farming practices; especially the enhanced quality of the ecological compensation areas is expected to improve the habitat and the possibilities for dispersal of target and indicator species in agriculture; 4. Payments for landscape quality: payments for preservation and promotion of landscape diversity (including more diverse crop rotation, flowering fields and traditional agricultural practices), based on local projects and co-financed by the Cantons; 206

207 5. Payments for production systems: area and headage payments to provide incentives for environment and animal-friendly production systems (e.g. Payments for production systems: area and headage payments to provide incentives for environment and animalfriendly production systems (e.g. organic farming). 6. Resource-efficiency payments: payments providing incentives to use specific production techniques (e.g. certain manure spreading methods and soil conservation methods like notill). 7. Transitional payments: are provided to farmers who suffer a loss of direct payments under the new system. These payments are scheduled to decrease gradually during and phased out totally within the 4 years following The system is complex and each category includes several programmes. These programmes are a combination of new programmes and old programmes, i.e. already implemented under the AP 2011 package ( ). The OECD Review of Agricultural Policies: Switzerland provides more detailed information on the programmes providing payments in the main categories of the AP and discusses expected economic and environmental effects. Domestic policy developments in Since the abolition of the milk quotas in May 2009, all dairy farmers are obliged to conclude milk delivery contracts with their milk purchasers. The inter-branch organization for milk (IP Lait) was responsible for standard milk delivery contracts (setting 3 levels of prices and corresponding volumes for contingents A, B and C) for its members. By a decision of the Federal Council those standard milk delivery contracts were made compulsory also to producers outside the IP Lait from 1 July 2013 to 30 June In December 2015, the Federal Council decided to apply the obligation of milk delivery contracts for 2016 and Due to border measures the price paid to milk producers remains on average 50% above the world market prices (producer NPC) in Since 2010, output payments consist of the allowance for milk transformed into cheese and the additional allowance when milk is produced without silage feed. These payments are maintained under the PA Concerning the area payments for sugar beet, there has been a gradual reduction of these payments from CHF per hectare in 2013 to CHF in 2014 and for 2015 the payments were initially scheduled at CHF However, due to a reduction of sugar prices on EU markets (reflecting the reform of EU sugar policies) these payments were maintained at CHF in 2015 and increased to CHF in As mentioned above, the structure of the programmes providing direct payments is set for the whole period However there are important shifts within those payments. Some payments, mainly to contribute to landscape quality (+CHF 55 million in 2015) and biodiversity (+CHF 31 million in 2015) are increased. As the total budgeted amount is stable (same for all years), the transitional payments are reduced gradually (CHF 308 million in 2014 and CHF 178 million for 2015). This development shows that farmers adapted quickly to the new direct payment scheme and less transitional payments are needed. By 1 January 2016 payments to contribute to biodiversity (quality level 1) are reduced along with defining a maximum percentage per farm (50%) as areas of extensive meadows and pastures went well beyond the target Almost simultaneously to the new direct payment scheme a new computing system for the consistent manure management (HODUFLU for transparent nutrient flow) and a revised scheme for standardized control data (as part of the central information system on the food chain) have been introduced. In addition, in 2015 a project has been launched to simplify administration of agricultural 207

208 policy. The main objective has been to screen the current Federal Law on Agriculture, regulations and directives, requirements etc. from an intern perspective (the Federal Office for Agriculture) but also from an outside/implementation perspective (other federal offices, farmers, advice services, processing industry and research) in order to improve the efficiency of the current regulations. By 1 January 2016 a first set of simplifications has been implemented on regulation level Trade policy developments in In November 2008, Switzerland and the European Union launched negotiations on full trade liberalisation in the agro-food sector. So far, three comprehensive rounds of negotiations have taken place, but the negotiations have slowed down in the most recent years. As a member of the European Free Trade Association (EFTA), Switzerland participates in ongoing free trade negotiations between the EFTA and, respectively, Indonesia, Viet Nam, Malaysia and the Philippines, as well as Central American States (Free Trade Agreements with Costa Rica and Panama are signed; negotiations with Guatemala are concluded in substance and are on hold with Honduras). Negotiations with Algeria, India, Thailand, and the customs union of the Russian Federation, Belarus and Kazakhstan are on hold for the moment. Negotiations with Bosnia and Herzegovina have been completed and the agreement entered into force on 1 January Similarly negotiations with Georgia have been concluded and the agreement is expected to be signed in Also the bilateral agreement between China and Switzerland entered into force on 1 July These Free Trade Agreements and the ongoing negotiations cover also agriculture i.e. processed agricultural products and a range of basic agricultural products Preferential tariff rates are unilaterally applied to imports from developing countries under the general system of preferences. In the context of the initiative of the Swiss government to grant zero tariffs on all products originating in Least Developed Countries (LDC), since September 2009 all agricultural imports from LDC countries are duty and quota free The export subsidies for agricultural primary products were eliminated from 2010, while export subsidies are maintained for selected processed products to compensate for high prices paid to farmers. In 2014, these export subsidies amounted to CHF 70 million (CHF 58 million spent on dairy products and CHF 12 million on grain based products). Due to a sharp strengthening of the CHF in 2015, related to the end of intervention of the Swiss Central Bank, the export subsidies budgeted for 2015 were increased to CHF 95.6 million. References OECD (2015), OECD Review of Agricultural Policies: Switzerland 2015, OECD Publishing, Paris, 208

209 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 20. TURKEY Support to agriculture 543. Despite a series of ambitious reforms since the late 1990s, the level of support made available varies from year to year and remains higher than the average for the OECD area. The most distorting forms of support prevail as Market Price Support accounts for three-fourths of the producer support (Figure 2.20). Total support estimate to agriculture (TSE) was around 2% of GDP in most recent years. Payments based on output and input use are the most important element of the support. As for the General Services Support Estimate (GSSE) the main element is financing the development and maintenance of infrastructure, which accounts for approximately 80% of the GSSE expenditure The level of price distortions has been reduced only slightly: domestic prices remain on average 20% above world prices. Decoupled direct payments were abolished in 2009, while payments based on commodity output have increased since then. The main instrument of direct payments to farms in Turkey is deficiency payments ( premium payments ) provided for the products that are in short domestic supply. Figure Turkey: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Panel B. Producer support estimate as % of gross farm receipts (%PSE), Million TRY Producer Support Estimate General Services Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million TRY Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), % Turkey OECD Main policy changes 545. The strategic objectives of agricultural policies, as identified in the 10th Development Plan ( ) are to develop a globally competitive and environmentally-friendly agricultural sector, whose fundamental aim is to provide sufficient and balanced nutrition to population. 209

210 546. After the abolition of decoupled direct payments in 2009, commodity-specific deficiency payments and the payments based on current area or animal number became the main programme of producer support. Recently, Turkey introduced a reform to the deficiency payment to differentiate the crops that will be eligible for the payments to rationalize the production structure based on the most suitable ecological conditions. Assessment and recommendations Turkey has made remarkable progress in the last decade towards strengthening the agricultural sector s legal and institutional framework. Since policy efforts aimed at improving market orientation have been variable. There have been ad hoc changes to policy settings within a macro-economic context of high inflation and volatile exchange rates. The share of producer support in gross farm receipts (%PSE) in remained almost unchanged from levels, at around 20%, which is slightly higher than the OECD average. Producer support largely derives from the most market distorting measures, hindering the sustained improvements in agricultural productivity. Further efforts are required to reduce the most distorting support. Greater efforts need to be made to transform the state economic enterprises into economically viable entities operating under competitive market conditions. More public investment is required into agriculture knowledge and innovation system which so far has received a very small share of total support. 210

211 Table Turkey: Estimates of support to agriculture 211

212 Contextual information 547. Following the macroeconomic and institutional reforms in the early 2000s, the Turkish economy has accelerated and grown faster than the OECD area as a whole and the European Union. Turkey has a growing population which ranks 18th in the world, more than half of it are people below 30 years of age. Agricultural production has grown rapidly over the past two decades. Notwithstanding various structural bottlenecks, such as the predominance of small-sized and subsistence or semi-subsistence farms, Turkey ranks as a significant agricultural exporter of nuts, dried fruits, and some fresh vegetables. The agricultural sector is one of the most important sectors of the country s economy. Figure Main economic indicators, Real GDP growth Unemployment rate Inflation rate (right axis) % % Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Turkey International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 2% Population (million) % 2% Land area (thousand km 2 ) % 1% Agricultural area (AA) (thousand ha) % 1% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) % 0% 100% 200% 300% Average of all countries analysed Notes: * or latest available year.1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en * 212

213 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 548. During , the agricultural output in Turkey grew at the same pace as the world on average. However, Turkey achieved higher total factor productivity (TFP) growth than the world, while the inputs of primary factors declined overall. The fundamental lever for higher agricultural productivity is in reallocating of labour resources from low-productivity uses within agriculture to more productive uses. The intensity of input use per hectare of agricultural land is not particularly high in Turkey compared to many OECD countries, but it has substantially increased during the last two decades. Agriculture accounts for more than 80% of water use. Without an investment to improve the efficiency of water use, the expansion of irrigated area, combined with expected decrease in precipitation due to climate change, may increase water stress. The improvement of efficiency in agricultural water use has been prioritized as a transformation programme in the 10th Development Plan. Figure Composition of agricultural output growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.1% -0.1% -0.5% Turkey 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture % OECD Turkey Data for the most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Turkey Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Imports Exports Primary for consumption Primary for industry Processed for consumption Processed for industry Energy consumption 39 GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) 1.02% 3.13% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) Water stress indicator International comparison % Deviation from OECD average 1-100% 0% 100% 200% 300% * 213

214 Development of support to agriculture 549. Turkey has implemented a series of ambitious reforms since the late 1990s. However, the level of support made available varies from year to year and remains higher than the average for the OECD area, and the most distorting forms of support prevail. Decoupled direct payments were abolished in 2009, while payments based on commodity output have increased since then. PSE as % of receipts (%PSE) Support to producers (% PSE) increased by one percentage point to 21% in , compared to , and is higher than the OECD average. The %PSE in 2015 declined by two percentage points from 2014 at 20% of gross farm receipts % 21% 28% Potentially most distorting support as % of PSE While the most production- and trade-distorting policies (based on commodity output and variable input use without constraints) accounted for almost all producer support in , in it was 88% % 98% 88% Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers in were about 20% higher than those received on the world market. They were 25% higher during TSE as % of GDP The share of total support to agriculture in GDP over was 2.1% and the share of general services in the total support estimate was around 19%. Expenditure on hydrological infrastructure accounts for 70% of the support to general services % 4.0% 4.5% -0.2% PSE Decomposition of change in PSE, 2014 to % MPS +1.9% BUDGETARY PAYMENTS Price Gap Quantity -9.2% +5.3% The level of support declined in 2015 mainly due to the narrower gap between domestic and border prices (MPS) for wheat, sunflower and apples. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Sunflower Sugar Milk Beef and veal Poultry Sheep meat Eggs Apples Potatoes Cotton -20% 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The share of single commodity transfers increased from 80% of producer support in to 88% in SCT were higher than 40% for potatoes and beef. 214

215 Description of policy developments Main policy instruments 550. The strategic objectives of agricultural policies, as identified in the 10th Development Plan ( ) are to develop a globally competitive and environmentally-friendly agricultural sector, whose fundamental aim is to provide sufficient and balanced nutrition to population. Particular emphasis is given to R&D, innovations, productivity, improvement strengthening of food safety infrastructure and the more efficient use of water in agriculture. The plan aims to achieve a growth of 3.1% in the agricultural sector annually, while the share of agricultural employment in total employment is projected to decline to 21.9% and the share of the sector in GDP is projected to be 6.8% by The Strategic Plan of the Ministry of Food, Agriculture and Livestock (MoFAL) defines five strategic areas in the agricultural sector: i) agricultural production and supply security; ii) food safety; iii) phytosanitary and animal health; iv) agricultural infrastructure and rural development; and v) institutional capacity building. Turkey's agricultural policy and strategy has also been influenced through its identification of five priority areas for harmonization with the EU including the improvement of agricultural statistics (WTO 2016) The tools of agricultural support to be used for achieving the strategic objectives include deficiency payments, payments based on current area, livestock support (for fodder crops, artificial insemination, milk premiums, risk-free livestock regions, bee-keeping and fisheries), support for crop insurance, rural development and environmental set-aside Import tariffs complemented by purchasing prices fixed for cereals, sugar beet and tobacco provide support for domestic production. Export subsidies are applied to a number of products, including fresh and processed fruit and vegetables, derived food products, poultry meat and eggs. Production quotas at processing plant level are applied for sugar beet Deficiency payments ( premium payments ) are provided for the products that are in short domestic supply. Producers of oilseeds, olive oil, cotton, cereals and tea (since 2005) benefit from such payments. Hazelnut producers receive payments based on area. Payments are also provided for fodder crops, organic farming, certified seeds, gasoline and fertiliser use implemented on the basis of area. Most farmers are exempt from income tax since the average farm size is small, and average farm income is rather low Input subsidies are provided mainly in the form of interest concessions and payments to improve animal breeds and farm production capacity (e.g. field levelling, drainage, soil improvement and protection, land consolidation and research and development). A number of regulations control water and soil pollution, and provide protection to wetlands. The government plays a major role in providing infrastructure investment, especially for irrigation. A feature of Turkish agriculture is its widespread cooperative organisation, involving production co-operatives (e.g. irrigation and sugar beet co-operatives) to credit and marketing co-operatives. Region specific programmes and investment support to improve dairy and beef farm structures are in place Turkey maintains four state owned marketing boards for agricultural products: the Turkish Grain Board, the Meat and Milk Board, Sugar Authority, and Tobacco and Alcohol Market Regulatory Authority (WTO, 2016). Although their role in agricultural marketing has reduced, they influence the determination of prices in the market by providing price support through commodity purchasing and stockpiling, disbursing subsidies, procuring and supplying input to farmers, or importing and exporting agricultural commodities (OECD, 2011). 215

216 Domestic policy developments in A basin-based support programme, which differentiates the crops that will be eligible for deficiency payments has been developed to reform the support system. By differentiating crop-specific supports across regions, the government aims to: i) increase productivity, with crops to be produced based on the most suitable ecological conditions; and ii) change the crop pattern by increasing the production of imported crops, while decreasing excess supply in some other crops. Thirty basic agricultural basins were established in 2009, based on a model developed by the MoFAL, which takes into account ecological and production conditions Each farmer registered under the National Farmer Registration System (NFRS) received a socalled diesel payment of TRY 48.5 (USD 18) per hectare and a fertiliser payment of TRY 66 (USD 24) per hectare, on average, in The insurance support scheme continued in As of end of 2015, insurance policies were issued and TRY million (USD million) has been paid. Farmers and agricultural enterprises benefit from loans offered at concessional rates by the Ziraat Bank (TCZB) and Agricultural Credit Co-operatives (ACC), with a subsidy rate that varies between 25% and 100% of the TCZB s current agricultural credit rate, depending on the type of undertaking (organic farming, livestock breeding, irrigation, good farming practices and R&D). The difference between the current rates and the rates applied to farmers is paid by the Treasury to the TCZB and ACC (in the form of income loss ). Treasury s payments reached a total of TRY million (USD 498 million) in 2015.With regard to agricultural state economic enterprises, while the privatisation of the tobacco and salt public enterprise has been completed, the privatisation of sugar enterprise is still in process On rural development, a new national Rural Development Strategy was issued in The ongoing support on rural development projects involves co-financing the beneficiaries to mobilise privatesector resources. Implementation of the Pre-Accession Assistance Rural Development Programme (IPARD-1) , which sets out Turkey s measures to achieve consistency with EU s rural development policy and the EU Common Agricultural Policy, has been completed. In the scope of the IPARD-1, in total EUR 1.2 billion (USD 1.3 billion) public contribution has been paid to the rural development projects by the end of December EU Commission approved New IPARD Program (IPARD-2) for the period and the first call was launched on 18 December This Program is implemented in 42 of 81 provinces of Turkey. In the remaining 39 provinces and for specific topics that have not been supported by IPARD, the Rural Development Investments Support Programme (RDISP) was started in The RDISP has two components: investment support to economic activities and agricultural infrastructure. Trade policy developments in The average rate of customs duties for agricultural products was 58.9% in Custom duties on molasses were increased in 2015 back to the level that was force in 2013, with the exemption for certain products under end-use provisions of customs legislation. Equivalent counter-safeguard measure on walnut originating from Ukraine which was imposed in accordance with the Agreement on Safeguard was terminated in 2015 on a reciprocal basis after Ukraine had terminated the measure on certain types of motor vehicles. Customs duty on sesame seed in husk was reduced in Export subsidies for agricultural products were announced in the Official Gazette in 2015 and were applied on exports during the 2015 calendar year. In 2015, 16 commodity groups, out of the 44 groups eligible under Turkey s WTO commitments, received export subsidies. The subsidies are 216

217 provided to exporters in the form of deductions to their payments to public corporations such as taxes, or the costs of social insurance premiums, telecommunications or energy. References OECD (2011), Evaluation of Agricultural Policy Reform in Turkey, OECD publishing, WTO (2016), Trade Policy Review of Turkey, WT/TPR/S/331, WTO. 217

218 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 21. UKRAINE Support to agriculture 563. Producer support has been negative in recent years. In 2015 it slightly increased compared to 2014, but remained negative at minus 7%. Policies continue to tax agricultural producers on aggregate, although this outcome results from a combination of taxation of export sectors and protection of import sectors. The level of general services support shrank further. Figure Ukraine: Level, structure and evolution of agricultural support Million UAH Panel A. Total Support Estimate and its main components ( average) Producer Support Estimate General Services Support Estimate Knowledge Inspection and control Infrastructure Other Panel B. Producer support estimate as % of gross farm receipts (%PSE), %PSE Ukraine OECD MPS, outputs and inputs Other payments requiring production Other Million UAH Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), Main policy changes 564. Ukraine ratified the Association Agreement with the European Union in September 2014 and has begun its implementation. The Ministry of Agrarian Policy and Food of Ukraine (MAPF) has prepared The Strategy for Agriculture and Rural Development , which was approved in late In the context of budget constraints, the government focused on deregulation and liberalisation of the sector. The Cabinet of Ministers of Ukraine revised and substantially reduced quantities of grain and sugar beet procurements and completely abolished wheat purchases for state grain reserves for the season. The number of agricultural programmes was reduced from 32 in 2014 to 19 in 2015, with many programmes having obtained either less or no funding in Despite the initial intentions to end support based on Value Added Tax (VAT) concessions, it continued to be an important policy. On 1 January 2016, the Deep and Comprehensive Free Trade Area between the European Union and Ukraine entered into force. Starting from 1 January 2016, the Russian Federation has suspended the free trade regime with Ukraine under the Agreement on Free Trade in the Commonwealth of Independent States (CIS) Area and extended to Ukraine its ban on imports of agro-food products from the European Union. Ukraine subsequently prohibited a broad range of agro-food imports from the Russian Federation. 218

219 Assessment and recommendations On average policies tax producers this, however, results from taxation of export sectors and protection of import sectors. Most policies are implemented on an ad-hoc basis and are missing a long-term strategic orientation. Financial constraints led to the elimination of some important tax concessions to agriculture. The number of agricultural programmes was substantially reduced in 2015, with many programmes either less or not funded at all. Export policies should be reformed. Export restrictions are trade distorting and have a dampening effect on domestic producer prices. By reducing the profitability of the country s most competitive commodities, they impair the international competitiveness of the sector. VAT refunds on export sales are ineffective, create distrust and harm business environment. General services support declined, mainly due to the cuts in the budget for inspection and control services. In deteriorating economic conditions, the government focused on deregulation and liberalisation of the sector. While the policy of deregulation deserves attention, maintaining an adequate level of basic general services to producers should remain a priority. Moreover, compliance with EU food safety, veterinary and phyto-sanitary requirements remains a major barrier for Ukraine s access to the EU market. The sector showed an impressive total factor productivity growth during This, however, occurred under conditions of a deteriorating capital stock and to sustain high productivity growth major investment will be required in the upcoming years. However, high economic and political uncertainties lead farms and external investors to delay investments. A return to macroeconomic and political stability remains a critical condition for maintaining a productive agricultural sector. The high dependence of the country s agricultural sector on weather requires elaboration of a system of measures allowing an effective management of weather-related risks and adaptation of agricultural production to climate change. 219

220 Table Ukraine: Estimates of support to agriculture 220

221 Contextual information 565. Ukraine is richly endowed with resources for agriculture, in particular fertile arable land, placing it among the world s largest grain and vegetable oil exporters. In , the country exported 7.5 million tonnes of wheat and 2.8 million tonnes of sunflower oil, on average per year (FAO, 2016). Adverse political and economic developments in Ukraine led to a contraction of real GDP by an estimated 10.5% in The annual inflation rate rose to 48.7%. Agriculture contributes around 10% of GDP and 17.1% of employment. Agricultural output decreased by 4.8% in 2015, mainly due to less favourable weather conditions compared to Commercial large-scale production generates around half of total agricultural output, with the rest coming from household production. Nearly one-third of the population lives in rural areas, experiencing the rapid ageing, high unemployment and low income. Figure Main economic indicators, % Real GDP growth Inflation rate (right axis) Unemployment rate % Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators Ukraine International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 0.5% Population (million) % 1.3% Land area (thousand km 2 ) % 0.8% Agricultural area (AA) (thousand ha) % 1.5% 1 Average of all countries analysed -100% 0% 100% 200% 300% Population density (inhabitants/km 2 ) * GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) Share of arable land in AA (% ) Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. 3. Data listed 1995 refers to Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en 383% 352% 221

222 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 566. Agricultural output growth showed a substantial positive trend: from 2003 to 2012 it increased annually by 3.4% per annum. With 2.6% per annum, total factor productivity (TFP) growth was noticeably above the world level. These positive trends were achieved under conditions of a deteriorating capital stock and a considerable increase in the use of intermediate input on average for the sector in Macroeconomic and political stability are required to stop farm disinvestment and sustain high productivity growth rates. The share of agriculture in the total energy use decreased compared to the level, but remains above the OECD average and is to explain by a relatively high share of agriculture in the country s GDP. The share of irrigated land declined by 1% compared to Figure Composition of agricultural output growth average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 5% 4% 3% 2% 1% 0% -1% -2% 2.6% 1.9% -1.1% Ukraine 1.7% 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database. Figure Composition of agro-food trade, Source: UN Comtrade Database. Figure Environmental indicators for agriculture Data for most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators Ukraine Imports Exports Primary for consumption Primary for industry Share of agriculture in water abstractions (% ) Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en Processed for consumption Processed for industry % OECD Ukraine Energy consumption n.a. n.a. n.a. GHG emissions Water use Water stress indicator Share of agriculture in total World TFP annual growth rate (% ) -0.26% 2.62% 1.58% 1.74% OECD average Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) International comparison % Deviation from OECD average 1-100% 0% 100% 200% 300% * 222

223 Development of support to agriculture 567. Producer support has been variable over the long term, largely reflecting fluctuations in market support. The %PSE was negative from 2013 to 2015, as budgetary payments and price protection for imported commodities only partly offset negative market price support on exported commodities. On aggregate, producer prices are below the world levels, but price protection shows considerable disparities across commodities. A large share of budgetary support is provided in ways that are production and trade distorting. PSE as % of receipts (%PSE) Support to producers (%PSE) was -6% in implying an implicit overall taxation. Similar to the situation in , a strong fall in support was largely attributed to macroeconomic instability and the devaluation of the Ukrainian Grivna which pushed domestic prices below world levels and substantially narrowed the government s capacity to provide budgetary support % -6% Potentially most distorting support as % of PSE Because the value of market price support was negative and only to a limited extent offset by the budgetary transfers, the share of most distorting support in the PSE was not calculated. Not calculated Ratio of producer price to border price Producer Nominal Protection Coefficient Prices received by farmers were 12% lower than world prices, on average in This virtually resembles the situation in TSE as % of GDP Total support share was not calculated as total support was negative in both reported periods. Not calculated -8.3% PSE Decomposition of change in PSE, 2014 to % MPS +14.1% BUDGETARY PAYMENTS Price Gap Quantity -16.5% -5.8% The value of support in nominal prices showed a further decrease in 2015 compared to This results from a reduction in MPS which was only partially offset by the rise in the budgetary payments. On average, the negative price gap between domestic and world prices widened due to the devaluation of the national currency. This effect was compound by a decline in the aggregate volume of production. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Oats Rye Sunflower Sugar Milk Beef and veal Pig meat Poultry Eggs Potatoes -50% 0% 50% 100% % of commodity gross farm receipt for each com. Transfers to single commodities show substantial variations, with meat, eggs and sugar receiving support, and grains, oilseeds and milk being taxed. 223

224 Description of policy developments Main policy instruments 568. Ukraine uses a range of market price support instruments. These include tariff protection, nontariff trade regulation, and various forms of domestic price measures. The state agency Agrarian Fund implements domestic price interventions through the operation of a state intervention fund. Initially dealing only with grain, the Agrarian Fund has become progressively involved in other activities, such as sugar commodity interventions, state purchases and sales of a broad range of agricultural and food products, forward-contracting, flour processing and wholesaling. For purchases by the Agrarian Fund, official minimum and maximum intervention prices are set and cover commodities that are "objects of state regulation". The exact list of such products and the periods during which these administered prices will be in effect are defined by specific government decrees. Minimum prices do not play a role of guaranteed prices but are regarded as a floor-price reference for private market operators. Minimum intervention prices should not exceed market levels to comply with the Ukraine s WTO support domestic commitment The sugar quota regime is another element of price support policy. A national marketing quota for sugar produced from sugar beet and sold on the domestic market is set annually, together with the minimum in-quota prices for sugar beet and sugar. This quota does not account for sugar processed from imported raw cane sugar, which is subject to a Tariff Rate Quota (TRQ) Input subsidies represent Ukraine s principal instruments of non-price support. Since 1999, the bulk of this support is provided through a specific procedure to use the Value Added Tax (VAT) due by agricultural producers and processors. Budgetary deficits led to a gradual reduction in input subsidies, such as cost compensation to farms involved in seed production and pedigree animal breeding, and support to machinery leasing and interest subsidies. Most of them have not been provided since Previously regular area and headage payments have also been discontinued in Furthermore, the government stopped to support purchases of fertilisers, other chemicals, and electricity Agricultural producers are eligible for a Single Tax (the Fixed Agricultural Tax before 2015), which is set as a percentage of agricultural land value. Introduced in 1998, this tax replaced twelve taxes for which agricultural enterprises were liable as business entities. The preferences incorporated in this tax have been narrowing since then. At present, Single Tax replaces only three taxes profit tax, land tax, and special water use fee with agricultural entrepreneurs liable to all other taxes due on agricultural businesses Agricultural policy in Ukraine is currently at a turning point. The country ratified the Association Agreement with the European Union in September 2014 and has begun its implementation. The Ministry of Agrarian Policy and Food of Ukraine (MAPF) has prepared The Strategy for Agriculture and Rural Development , approved by the National Reforms Council in November The overall objective of the Strategy is to increase the competitiveness of the agriculture and food sector and trade and to promote rural development in a sustainable manner, in line with European Union legislation and international standards, including Ukraine s commitments stemming from WTO membership. The Concept of Rural Development in Ukraine, approved in September 2015, defines the priorities for the development of rural areas in Ukraine until Domestic policy developments in The scope and the extent of government support to agriculture were significantly limited in recent years. The net public debt reached 82% of GDP at the end of 2015 and its reduction depends on a return to macroeconomic and political stability. In March 2015, a new programme loan was approved by the 224

225 International Monetary Fund (IMF), conditional on Ukraine implementing broad structural reforms and austerity policy to deal with public deficit. However, the IMF had to delay the next tranche of its loan to Ukraine because of high political risk at the beginning of The budget of the Ministry of Agrarian Policy and Food was substantially reduced and amounted to UAH 1.9 billion (USD 87.0 million) in 2015 compared to UAH 6.3 billion (USD million) in For 2016, the Ministry s budget is set at UAH 1.03 billion (USD 40.2 million). This substantial reduction was partly due to the restructuring of budgetary responsibilities among ministries and the reorganisation of the Ministry, but also because of a substantial cut in allocations for agricultural support. The number of agricultural programmes was reduced from 32 in 2014 to 19 in 2015, with many programmes having obtained either less or no funding in The programme Partial compensation of interest on commercial bank credit was re-activated in 2015 after being not funded in UAH 291 million (USD 13.3 million) was allocated to interest rate concessions on commercial bank credit to agricultural producers in The largest share of support (66.9%) was allocated to credit for crop production. The share of support to the livestock sector amounted to 28.9%, while 3.6% were directed for purchases of young animals and poultry In February 2015, the Ukrainian Parliament adopted the Law On Amendments to Certain Legislative Acts of Ukraine for Simplification of the Conditions for Doing Business (the Deregulation Law). It abolished the requirement for a number of permits and approvals, including those in the agricultural sector such as the product export permit and the operational permit for the production of milk, and raw dairy and dairy products The Cabinet of Ministers of Ukraine revised and substantially reduced quantities of grain and sugar beet procurements and abolished wheat purchases for the State Intervention Fund for the 2015/16 season. These decisions will further delimit operations of the state agency Agrarian Fund. The purchases of grain by the Fund were 0.6 million tonnes in the season compared to 2.1 million tonnes in and 1.45 million tonnes in The domestic sugar quota was set at 1.72 million tonnes and 1.67 million tonnes in the 2015/16 and 2016/17 seasons, respectively, with higher minimum prices in nominal terms for both. Producers supplying sugar beet under the quota, in addition to minimum prices, were also eligible to receive payments per sown hectare. However, such payments were effectively paid only in In February 2016, the government approved a draft law abolishing the sugar quota with the final decision to be made by the Parliament A VAT-based support, the so-called VAT accumulation mechanism, is to remain in effect until 31 December 2017 despite earlier intentions of the new government to end it. According to this mechanism, agricultural producers can accumulate the VAT due on their sales of primary and processed products on special accounts. Accumulated funds should be used to purchase inputs. In December 2015, the Parliament approved changes to the Tax Law of Ukraine that change the share of VAT due on sales that can be accumulated on special accounts. Those shares have been set for 2016 as follows: 15% for grains, oil seeds and fibre crops, 80% for milk and beef meat, and 50% for all other agricultural products. The Ministry of Finance of Ukraine assessed that the new VAT procedure will decrease the indirect subsidies to agriculture to UAH 6.6 billion in 2016 compared to UAH 20 billion in Given that in recent years VAT concessions were a major source of government support, their discussed removal will lead to a further reduction in support Starting from 2015, agricultural enterprises are eligible for a Single Tax (ST) which is set per hectare of agricultural land as a percentage of its value established as on 1 July ST payers are exempt 225

226 from income tax, tax on agricultural land (only in the part which is used in production), and a duty for special use of water. In 2015 the ST rate was increased from 0.15% to 0.45% for arable land, hayfield and pasture, and from 0.09% to 0.27% for perennial plantings. The average ST value was UAH 100 in 2015 (USD 4.58) per hectare of arable land. From 1 January 2016, the ST rates increased to 0.81% for arable land, hayfield and pasture, and 0.49% for perennial plantings The moratorium on the sale of agricultural land was extended repeatedly, this time until January The lift of the moratorium is conditioned by coming into force of a law on turnover of agricultural land. Development of a modern land cadastre has been viewed as a necessary condition to reform agricultural land market. The Law on the State Land Cadastre came into force in early Land plots are now subject to state registration in the Cadastre by opening land plot books that should contain detailed cadastral information about the plots. According to the Minister of Agrarian Policy and Food, the work on the Land Cadastre has been completed by 20% as of February 2016.The plans were announced to privatise 429 agricultural enterprises currently under the auspices of the Ministry of Agrarian Policy and Food, of which only 93 remain in operation, while the rest are either in the process of reorganisation, nonoperational, or undergoing bankruptcy and liquidation procedures The government also considerably reduced support to general services. The budget for the inspection and control services was cut by more than 50% in 2015 compared to 2014 this seriously affected the work of the State Veterinary and Phytosanitary Service of Ukraine. No budget was assured for the newly established State Service of Ukraine for Food Safety and Consumer Protection, which replaced the three following institutions: State Veterinary and Phytosanitary Service, the State Inspectorate for Consumer Rights Protection, and the State Sanitary and Epidemiological Service, in the early Consumers in Ukraine saw strong food price increases: food prices rose by 30% between January 2014 and January 2015, and by 46% between January 2015 and January The Agrarian Fund supplied flour produced from state grain stocks to bakeries at fixed prices below market levels. In 2014, 440 thousand tonnes of grain went to produce low-priced flour, almost double of the volume in This practice was continued in 2015, but was not effective in stabilising bread prices. The national legislation empowers local authorities to cap the mark-ups on a number of essential foods and agricultural products (baby food, flour wheat bread, meat, butter, sunflower oil, sugar, and grains). Administrative price controls on foodstuffs were exercised at the local level, such as setting consumer price ceilings and markup limits for wholesalers and retailers. Trade policy developments in Ukraine has been a member of WTO since 16 May The country s WTO commitments foresee an important reduction in the average level of import protection for agro-food products. The majority of tariff bindings had been reached by 2011 and the remaining ones in Ukraine maintains TRQ for raw cane sugar of thousand tonnes with a 2% in-quota tariff, however, the quota remained practically unused in 2012 and 2013 and was not in use at all since 2014 due to high carryover stocks In February 2015, Ukraine made recourse to GATT provisions permitting special measures to stabilise the balance of payments. A 5% to 10% import tariff surcharge was introduced on all imports for a period of twelve months. The maximum rate of 10% was applied to all agro-food imports (HS 01-24). In January 2016, this surcharge was removed Another principal WTO discipline concerns quantitative restrictions on exports. Ukraine continued to implement gradual reductions of export duties. They were decreased for sunflower seeds from 14% at accession to a final rate of 10% in 2012 and remained at this level since then. Prior to WTO accession, a 50% duty was imposed on live cattle exports, which is to be reduced by 5 percentage points 226

227 per year to reach 10% (the duty rate was 15% in 2015). Raw hide duty is to be scaled down by 1% per year from the pre-accession 30% to the final bound rate of 20% (it was 23% in 2015) Ukraine also made a commitment to remove restrictions on grain trade that existed at the time of WTO accession. However, subsequently it imposed export duties on several occasions until a Memorandum of Understanding was signed between the Ministry of Agricultural Policy and Food and representatives of grain exporters and producers. It was decided that maximum export volumes for each of the main exported grains wheat, barley, and maize would be established at the beginning of each marketing year (MY). If exports of any type of grain reach certain levels of the agreed volume, the Ministry could review conditions of trade (implying possible introduction of export restrictions). This arrangement was first introduced for the 2011/12 MY, marking a substantial progress in moving away from ad hoc and often inadequately grounded export restrictions that destabilised the grain sector. The following volumes were approved for exports for the 2015/16 season: wheat 16.6 million tonnes, rye 8.0 thousand tonnes, barley 3.9 million tonnes and maize 16 million tonnes The VAT regime on exports of grains, oilseeds and fibre crops introduced in 2011 exempted eligible exporters from VAT payment, making VAT refunds unnecessary. This policy change was received largely as a positive development since the earlier practice of VAT reimbursement was missing transparency and applied only selectively. This provision was effective until 1 January 2014 initially but was extended until 1 January 2018 in However, it did not apply to exports of primary producers who directly export grain, oilseeds and fibre crops since they were subject to the special VAT accumulation mechanism. In December 2015, the Parliament annulled the earlier provisions. In 2016 the VAT is to be paid and reimbursed to all exporters of grain, oilseeds and fibre crops A law was passed in February 2015 to simplify administrative procedures including provisions which may simplify agro-food exports: this law removes quarantine certification, shortens the time for export control, and streamlines food product registration On 27 June 2014 the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of their Association Agreement. In April 2014 the EU unilaterally granted Ukraine preferential access to the EU market until 31 December In September 2015 the implementation of the DCFTA was postponed until 1 January 2016 to guarantee Ukraine's access to the CIS market and to maintain the Ukraine-Russian Federation bilateral preferential regime Following the full implementation of the DCFTA by Ukraine, the Russian Federation has suspended its free trade regime with Ukraine under the Agreement on Free Trade in the Commonwealth of Independent States (CIS) Area as on 1 January A separate resolution by the Russian Federation government extended to Ukraine the ban on imports of agro-food products as has been imposed on the European Union. This ban became effective for Ukraine on 1 January Ukraine responded by placing the embargo on a wide range of Russian Federation agricultural products The liberalisation of trade between the European Union and Ukraine is to be implemented within a transition period of 10 years. The European Union opens zero-tariff rate quotas for Ukraine s principal agro-food products, such as grain, meat and milk products, and sugar, and grants free access for the others. Ukraine will implement phased market opening for goods originating from the European Union for around four-fifths of its agricultural tariff lines including almost one-third liberalized as on 1 January Ukraine has also secured the right to use safeguard measures and additional trading conditions; for example, to apply entry prices for a certain number of tariff lines. The parties committed apply no export subsidies for mutually traded agricultural goods. The DCFTA incorporates fundamental WTO rules on non-tariff barriers, such as prohibition of import and export restrictions, disciplines on state trading etc. The main barrier for trade integration remains Ukraine s ability to comply with EU food safety, veterinary 227

228 and phyto-sanitary requirements. Thus, the DCFTA contains provisions for approximation of technical regulations, standards and conformity assessments, as well as technical co-operation in the field of technical regulations, standards and related issues between Ukraine and the European Union In April 2014, the European Union eliminated import duties on the majority of Ukrainian commodities (within HS codes) and TRQs with zero in-quota tariffs opened. Of the total 34 TRQs that were opened, those for maize, wheat, poultry, honey, grape and apple juices were fully filled in 2014, while the remaining ones were filled within a range of 7%-28%. Poultry is the only Ukrainian meat product that can be exported to the European Union at present as other livestock exports have yet to achieve compliance with EU food safety and SPS regulations. On its part, Ukraine reduced import duties for a number of goods imported from the European Union from 1 January About 40% of agriculturerelated import duties were reduced to zero immediately after the Agreement entered into force, and around a half of import duties will be nullified during a seven-year transition period. However, about 10% of tariff lines covering selected products in such product categories as dairy and eggs, sugar, miscellaneous edible products, animal oils and fats, feeding stuff for animals will preserve non-zero tariffs. Since 1 January 2016 Ukraine applies three TRQs with zero in-quota tariffs for the products originating from the EU, specifically, pig meat, poultry meat and poultry meat preparations, and sugars Negotiations on free trade agreement (FTA) were concluded with Canada in Upon entry into force of the Agreement, Ukraine will immediately eliminate tariffs on 86% of Canada s current exports, with the balance to be phased out or subject to tariff reductions over a period of up to seven years. This includes the elimination of the vast majority of its agricultural tariffs. Key Canadian exports benefiting from FTA include beef, canola oil, processed foods and animal feed. Tariffs will also be eliminated by Ukraine on fresh and chilled pork, and frozen pork will benefit from a duty-free tariff rate quota. On its part, Canada will immediately eliminate tariffs on 99.9% of current imports from Ukraine. This includes elimination by Canada of tariffs on 99.9% of agricultural imports from Ukraine. Key products from Ukraine that will benefit from this duty-free access include sunflower oil, sugar and chocolate confectionery, baked goods and vodka Negotiations and consultations on possible free trade agreements are on-going with Israel, Morocco, Serbia, Singapore, and Turkey. References FAOSTAT, accessed on 14 March The web portal of the Ukrainian government, accessed on 16 March

229 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 22. UNITED STATES Support to agriculture 596. Total support to agriculture represents 0.5% of US GDP in Support for general services provided to agriculture (GSSE) represents 11% of total support (TSE) in Producer support as a percentage of gross farm receipts is at about half the level of the OECD average The share of payments based on commodity output and payments based on input use in the producer support estimate (PSE) remains high at 49% of the PSE (the OECD average is at 60%). However, 38% of the payments based on input use in the US are also subject to voluntary environmental constraints. Payments requiring production (based on current A/An/R/I) represent 20% of the PSE. These payments are related primarily to farm insurance and are based on the difference between observed production, yield or revenue, and a pre-planting reference at individual farm or county level. Close to half of the Total Support Estimate is made up of support to consumers from taxpayers through the Supplemental Nutrition Assistance Program (SNAP). Figure United States: Level, structure and evolution of agricultural support Million USD Panel A. Total Support Estimate and its main components ( average) 0 Consumer subsidies General Services Support Estimate Producer Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Million USD Panel B. Producer support estimate as % of gross farm receipts (%PSE), % United States OECD Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), With the introduction of the new calculation method for GSSE in 2015, the GSSE for the US does not include two major sources of previously reported expenditures: 1) the share of the US Supplemental Nutrition Assistance Program (SNAP) expenditures (USD 61 billion in 2015) attributable to the food supply chain beyond the farm; and 2) expenditures on international food assistance (USD 1.4 billion in 2015), both of which had been included under Marketing and promotion under the previous GSSE. 229

230 Main policy changes 598. With implementation of the 2014 Farm Act underway there have been few domestic policy developments in the United States in calendar year There have been some developments related to the implementation of the Farm Act, particularly expansions of programmes accomplished in However, most implementation began in 2014 and has remained unchanged in Some important developments have occurred in the area of preferential and regional trade agreements. For example, the Trade Preferences Extension Act of 2015 (TPEA) provides preferential duty-free entry for a wide range of products imported from designated beneficiary countries and territories in Africa. The US completed negotiation of the Trans-Pacific Partnership (TPP) in October 2015 while continuing negotiations with the European Union on the Transatlantic Trade and Investment Partnership (TTIP). Other developments concern labelling and food safety. Finally, other initiatives encourage new farmers or target rural poverty. Assessment and recommendations Levels of producer support and border protection have decreased substantially since However, since 2002 the decline has been primarily due to higher world commodity prices, as several of the support policies in place are linked to changes in prices. Overall, the average support for represented 8.8% of gross farm receipts, with support in 2015 at 9.4%. The increasing emphasis on insurance and risk management policy tools is, in principle, a good approach to providing support to farmers when they are in need. However, the policy tools within the 2014 Farm Act may transfer some part of normal risks from farmers to the public budget. While established environmental programmes like the Environmental Quality Incentives Program (EQIP) and the programmes consolidated into the Agricultural Conservation Easement Program (ACEP) appear to be effective in addressing soil conservation and water pollution problems, careful assessments are needed to ensure that newer programmes like the Regional Conservation Partnership Program are well targeted to providing intended environmental benefits at a local level. Overall, the long-term effects on sustainable improvements in agricultural productivity and efficiency brought about by the 2014 Farm Act require continued assessment. 230

231 Table United States: Estimates of support to agriculture 231

232 Contextual information 599. The United States is the world s biggest economy, with a high GDP per capita and low levels of inflation and unemployment. Seven years after the onset of the financial crisis, the US economic recovery remains strong. The US is also among the world s largest countries in terms of land area and population. The United States is one of the most important producers of agricultural commodities in the world, and, in addition to having a very large domestic market, it is the world s largest exporter of agricultural products. Roughly 60% of its agro-food exports are products destined for further processing abroad. US agricultural policies therefore have the potential to exert a strong influence on world agricultural markets. Total agricultural production is equally divided between crops and livestock and spread across a wide range of commodities, including grains, oilseeds, cattle, dairy, poultry, and fruits and vegetables. Figure Main economic indicators, % Real GDP growth Unemployment rate Inflation rate Billion USD Figure Agro-food trade, Agro-food exports Agro-food imports Source: OECD Factbook statistics. Source: UN Comtrade Database. Table Contextual indicators United States International comparison * * Economic context Share in total of all countries 1 Deviation from all countries average 2 GDP (billion USD in PPPs) % 22% Population (million) % 9% Land area (thousand km 2 ) % 12% Agricultural area (AA) (thousand ha) % 15% Population density (inhabitants/km 2 ) GDP per capita (USD in PPPs) Trade as % of GDP Agriculture in the economy Agriculture in GDP (% ) Agriculture share in employment (% ) Agro-food exports (% of total exports) Agro-food imports (% of total imports) Characteristics of the agricultural sector Average of all countries analysed 1 Average of all countries analysed 1 Crop in total agricultural production (% ) Livestock in total agricultural production (% ) % 0% 100% 200% 300% Average of all countries analysed Share of arable land in AA (% ) Notes: * or latest available year. 1. Relative to the total of all countries covered in this report. 2. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: OECD statistical databases, UN Comtrade Database, World Development Indicators and national data. doi: /agr-pcse-data-en * 232

233 Annual growth rate TAD/CA/APM/WP(2016)12/FINAL 600. Total factor productivity (TFP) growth is driving agricultural output growth in the US. TFP growth averaged 2.1% between 2003 and 2012, above the world average of 1.7%. US output growth averaged 1%, which is very small compared with the average of other countries at 2.5%. TFP has continued increasing in the recent decade thanks to innovations in technologies and processes and has enabled reducing the use of primary production factors and intermediate inputs into agriculture. US agriculture is at a higher level of water stress (gross abstractions as percentage of renewable water resources) than other OECD countries but innovations have helped the sector keep level or decrease its pressure on natural resources. Agriculture s share in total energy use has risen slightly but remains below the OECD average. Figure Composition of agricultural output growth average Total Factor Productivity growth Primary factor growth Intermediate input growth Output growth 3.0% 2.5% 2.0% 1.5% 2.1% 1.7% Figure Composition of agro-food trade, Primary for consumption Processed for consumption Primary for industry Processed for industry Imports Exports % Source: UN Comtrade Database. 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -0.5% -0.6% United States 0.4% 0.5% World Primary factors comprise labour, land, livestock and machinery. Source: USDA Economic Research Service Agricultural Productivity database Figure Environmental indicators for agriculture Energy consumption Data for most recent period. Water stress is gross abstractions as percentage of renewable water resources. Source: OECD, Environmental indicators. Table Productivity and environmental indicators United States % OECD United States GHG emissions Water use Water stress indicator Share of agriculture in total TFP annual growth rate (% ) 1.96% 2.09% 1.58% 1.74% Environmental indicators * * Nitrogen Balance, Kg/ha Phosphorus balance, Kg/ha Agriculture share of total energy use (% ) Agriculture share of GHG emissions (% ) Share of irrigated land in AA (% ) Share of agriculture in water abstractions (% ) International comparison Deviation from OECD average 1-100% 0% 100% 200% 300% Water stress indicator Notes: * or latest available year. 1. Positive bars indicate above-average values, negative ones indicate below-average values. EU treated as one country. Sources: USDA Economic Research Service. OECD statistical databases, World Development Indicators and national data. doi: /agr-pcse-data-en World OECD average * 233

234 Development of support to agriculture 601. Support to farmers in the United States is low in comparison with other OECD countries. Support is now at less than half the level of and much of it is provided through various income and revenue insurance programmes. Most of the insurance policy instruments are commodity specific to provide coverage to the great variety of US agricultural enterprises. PSE as % of receipts (%PSE) Support to farmers as measured by the %PSE declined by 12 percentage points between and After having increased by 3 percentage points between 2013 and 2014 because of a wider gap between domestic and border prices for milk and of high projected payments associated with new payments introduced by the 2014 Farm Act, support to producers decreased slightly from 10% in 2014 to 9.4% in Potentially most distorting support as % of PSE The share of potentially most distorting support (based on output and variable input use without input constraints) has decreased over time % 12% 9% 51% 56% 30% Ratio of producer price to border price Producer Nominal Protection Coefficient Producer prices were 12% higher than world prices in and only 2% higher in with no change between 2014 and TSE as % of GDP Total support to agriculture represents 0.5% of GDP in Support for general services provided to agriculture (GSSE) increased from 6% of total support (TSE) in to 11% in % 0.5% 1.0% -11.0% PSE Decomposition of change in PSE, 2014 to % MPS -4.3% BUDGETARY PAYMENTS Price Gap Quantity -6.8% +0.08% The reduction of the 2015 PSE is a combined effect of reduced Market Price Support and lower budgetary payments. Transfer to specific commodities (SCT), MPS Payments based on output Other SCT Wheat Barley Maize Sorghum Rice Soybeans Sugar Milk Beef and veal Pig meat Sheep meat Wool Cotton 0% 20% 40% 60% 80% 100% % of commodity gross farm receipt for each com. The share of Single commodity transfers (SCT) decreased from 70% of PSE in to 43% in This share has increased by 6 percentage points between 2013 and 2015 with sugar, milk, beef and veal, and cotton seeing a significant increase over the past two years. 234

235 Description of policy developments Main policy instruments 602. The Agricultural Act of 2014 (2014 Farm Act), which was enacted in February 2014, provides the basic legislation governing farm policy for the period through to 2018, and beyond that time in the case of some provisions. The 2014 Farm Act made major changes in commodity programmes, added new crop insurance options, streamlined conservation programmes, modified some provisions of the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), and expanded programmes for specialty crops, organic farmers, bioenergy, rural development, and beginning farmers and ranchers. The 2014 Farm Act repealed Direct Payments, the Countercyclical Payments Program and the Average Crop Revenue Election (ACRE) Program. The repeal of direct payments, which were a decoupled form of support, constituted a major shift in US agricultural policy Sugar is supported by a tariff-rate-quota (TRQ), together with provisions for non-recourse loans and marketing allotments. Milk and dairy products are no longer supported by minimum prices with government purchases of butter, SMP and Cheddar cheese, but tariffs and TRQs continue. There are marketing loans for wheat, feed grains, cotton, rice, oilseeds, pulses, wool, mohair and honey, and border measures (including TRQs) for beef and sheep meat. Since the enactment of the 1985 Farm Act, eligibility for most federal commodity programme payments is subject to cross-compliance provisions that require recipients to have established an individual farm-based conservation plan to protect highly erodible cropland and wetlands Environmental programmes focus on measures to: convert highly erodible cropland to approved conservation uses (including long-term retirement); preserve wetlands, re-convert farmland back into wetlands, and encourage crop and livestock producers to adopt practices that reduce environmental problems. Ethanol production is mainly supported in the form of mandated fuel use, tax incentives and loan and grant programmes. Research and advice are increasingly focused on food safety and the promotion of sustainable farming practices With implementation of the 2014 Farm Act underway there have been few domestic policy developments in the United States in calendar year There have been some developments related to the implementation of the Farm Act implementation, particularly expansions of programmes accomplished in However, most implementation began in 2014 and has remained unchanged in Some important developments have occurred in the area of preferential and regional trade agreements. For example, the Trade Preferences Extension Act of 2015 (TPEA) reinstated preferential duty-free entry for a wide range of products imported from designated beneficiary countries and territories in Africa. The US completed negotiation of the Trans-Pacific Partnership (TPP) in October 2015 while continuing negotiations with the European Union on the Transatlantic Trade and Investment Partnership (TTIP). Other developments concern labelling and food safety. Finally, other initiatives encourage new farmers or target rural poverty. Domestic policy instruments in The implementation of the 2014 Farm Act continued in In March 2015 producers completed their choice of new direct payment programme between the Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programmes. Payments for the 2014 crop under these programmes began in October 2015 and continued through to the end of As required by the 2014 Farm Act, USDA finalised a rule in December 2015 to define actively engaged farmers. This rule limits payments under ARC, PLC and marketing assistance loan programmes to individuals who are active managers of 235

236 farms that operate as joint ventures or general partnerships. The rule applies to non-family operations with more than one farm manager. Family farms are exempt. Managers must provide evidence of measurable, documented hours and key management activities each year Related to bioenergy, USDA launched the Biofuels Infrastructure Partnership in May This programme awards competitive grants, matched by states, to expand the distribution infrastructure of higher blends of renewable fuel. Partnerships are led by the state receiving the grant but they may include other entities such as retailers and commodity groups. Commodity Credit Corporation funds must be used to pay a portion of the costs related to the installation of fuel pumps and related infrastructure dedicated to the distribution of higher ethanol blends, for example E15 and E85, at vehicle fuelling locations. The matching contributions may be used for these items or for related costs such as additional infrastructure to support pumps, marketing, education, data collection programme evaluation and administrative costs On farm insurance, USDA operated a pilot programme for Whole-Farm Revenue Protection insurance to allow producers to insure all the commodities on their farm as a whole, rather than by individual commodities. The programme, which will expand to every county in the United States beginning in 2016, allows producers to purchase a single whole-farm insurance policy to cover all commodities (both crops and livestock) on the farm. The programme offers a wide range of coverage levels; it provides coverage for replanting annual commodities, includes provisions that increase coverage as their operation expands. It also allows the coverage of market readiness costs. The policy provides for alternative yield histories for beginning farmers and ranchers. It can also be tailored to a range of farms with specialty or organic commodities, or those marketing to local, regional, farm-identity preserved, specialty, or direct markets. The pilot Rainfall Index Pasture, Rangeland, and Forage (PRF) insurance programme will be expanded to the contiguous 48 states beginning in PRF is an area-based plan that uses a rainfall index to determine losses and trigger indemnities Related to farm investment, the Farm Storage Facility Loan programme was expanded in 2015 to include floriculture, hops, rye, milk, cheese, butter, yogurt, meat, unprocessed poultry, eggs, and aquaculture (not including systems for maintaining live animals in water) as eligible commodities. This follows the previous expansion of the programme in 2014 when 23 new categories of eligible equipment for small and mid-sized operations, and specialty crop fruit and vegetable growers were added. In addition to the commodities added in 2015, field grains, rice, oilseeds, peanuts, pulse crops, hay, honey, renewable biomass, fruits, nuts, and vegetables continue to be eligible for the programme. These low-interest Farm Storage Facility Loans are available for financing the building or upgrading of storage facilities and assist a diverse range of farming operations, including small and mid-sized farms, beginning farmers and farms serving local food systems On technical assistance, USDA introduced new resources specifically designed for military veterans interested in agriculture in September These resources include a website, which consolidates in just one place all the information about priorities and incentives for military veterans in USDA programmes. USDA has been expanding its direct outreach programmes to transitioning military and military veterans. Tailored workshops and specific literature on opportunities for military veterans in agricultural professions and farming have been made available through local USDA Farm Service Agency (FSA) offices and military bases. Material on agriculture has also been introduced into the Department of Defense (DOD) transition assistance programme. USDA has also supported training programmes offered by private associations, which provide training and refresher courses on farming, ranching, business, and financial skills to veterans who may be interested in returning to farming or becoming new farmers. These opportunities are often combined with broader offerings for other groups interested in becoming new farmers. 236

237 611. Concerning rural development, increased attention is being put on the StrikeForce initiative in 2015 to address persistent poverty in rural areas. USDA staff work with state, local and community officials to increase awareness of, and participation in, USDA programmes in poor rural areas On domestic food assistance, the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) was re-authorised by the 2014 Farm Act. The total funding of SNAP was USD 76.2 billion in 2014 and 76.1 billion The SNAP expenditures attributable to the farm value of food purchased, which are included in the OECD Consumer Support Estimate (CSE), are estimated at USD 19.9 billion in 2014 and 19.9 billion in Trade policy developments in In June 2015 Congress passed, and President Obama signed, the Bipartisan Congressional Trade Priorities and Accountability Act of This Act provides six years of trade promotion authority (TPA), which defines US negotiating objectives and priorities for trade agreements and establishes consultation and notification requirements for the President to follow throughout the negotiation process. At the end of the negotiation and consultation process, Congress votes on ratification, without possibilities for amendment. TPA also sets the procedures for Congressional consideration of Acts to implement ratified agreements. Congress enacted the first TPA legislation in On 29 June 2015 President Obama signed into law the Trade Preferences Extension Act of 2015 (TPEA). It renews the African Growth and Opportunity Act (AGOA) through 2025, the longest extension in AGOA s history. It also renews the Generalised System of Preferences (GSP), authorising it through 31 December AGOA has been the cornerstone of the US s trade relationship with Africa for 15 years, and its renewal for a 10-year period will provide much-needed certainty to African producers, US buyers, and investors. GSP, which had lapsed in July 2013, was renewed with retroactive application. The GSP programme provides preferential duty-free entry for a wide range of products imported from designated beneficiary countries and territories. The TPEA reauthorizes the Trade Adjustment Assistance for Farmers (TAA) programme for fiscal years 2015 through Congress sets the level of funding for the programme each year through the annual budget appropriations process. No funding was provided for The United States completed negotiation of the Trans-Pacific Partnership (TPP) in October In addition to the United States, TPP includes 11 other Asia-Pacific countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam. TPP signatories represent 40% of the global economy. The agreement was signed on 4 February 2016 and is now undergoing ratification processes in each of the signatory countries The United States continued negotiations with the European Union on the Transatlantic Trade and Investment Partnership (TTIP) during four formal rounds of negotiations in In 2015 a WTO Dispute Settlement panel found India s ban on imports of various US agricultural products not in compliance with obligations under the SPS Agreement. The bans included poultry meat, eggs and live pigs to protect against avian influenza. However, the WTO Dispute Settlement panel found that they had been imposed without a scientific basis. The United States also prevailed in a WTO challenge to Argentina s non-automatic import licensing system and trade-balancing requirements. In December 2015 Argentina issued modified import licensing requirements. The United States is currently working to address its concerns about how these new measures will bring Argentina into compliance with the WTO decision. A dispute settlement panel was established in March 2015 in response to a request by the United States and New Zealand to examine Indonesia s import restrictions on horticultural products, animals and animal products. The case is ongoing. 237

238 618. In December 2015 Congress passed legislative changes removing beef muscle cuts, ground beef and pork from the commodities covered under Country of Origin Labelling (COOL) regulations as part of the Consolidated Appropriations Act of The final rule implementing the legislative changes was published in the Federal Register on 2 March 2016 and took effect immediately. The final rule brings the United States into compliance with the rulings of the World Trade Organization Dispute Settlement Body The Food Safety and Inspection Service (FSIS) added Lithuania to the list of countries eligible to export meat and meat products to the United States. FSIS reviewed Lithuania s implementation of laws, regulations and inspection system, and determined that they are equivalent to the Federal Meat Inspection Act (FMIA), the regulations implementing this statute, and the United States food safety system for meat and meat products. Under this final rule, meat from cattle, sheep, swine, and goats slaughtered in Lithuania, or parts or other products thereof processed in certified Lithuanian establishments, will be eligible for export to the United States. Food safety and labelling policy developments in with domestic and international impacts 620. The Food and Drug Administration (FDA) finalised several rules in 2015 to implement the Food Safety Modernisation Act (FSMA) of In September 2015 FDA amended the Current Good Manufacturing Practice in Manufacturing, Packing, or Holding Human Food. While the rule primarily impacts food manufacturers and other food facilities, FDA also clarified the scope of the exemption from registration requirements provided for farms from Registration of Food Facilities and, in so doing, clarified which domestic and foreign facilities are subject to the requirements for hazard analysis and risk-based preventive controls for human food The FDA also finalized its Veterinary Feed Directive (VFD) in June It requires a veterinary prescription for all medically important antibiotic use. The VFD final rule outlines the process for authorizing use of VFD drugs (animal drugs intended for use in or on animal feed that require the supervision of a licensed veterinarian) and provides veterinarians in all states with a framework for authorizing the use of medically important antimicrobials in feed when needed for specific animal health purposes. The VFD final rule continues to require veterinarians to issue all VFDs within the context of a veterinarian-client-patient relationship (VCPR) and specifies the key elements that define a VCPR: veterinarians engaging with rancher-clients, assuming the responsibility of clinical judgments about the animal s health, visiting the animal patient regularly, and providing for any necessary follow-up care The State of California enacted a law in October 2015, to take effect in 2018, which prohibits the use of antibiotics for growth promotion purposes in livestock, as well as requiring a veterinary prescription for use of antibiotics for disease prevention in livestock President Obama issued a Memorandum that the US General Services Administration would begin seeking vendors to supply meat and poultry produced according to responsible antibiotic-use policies as an identified option for purchase in Federal government cafeterias FDA issued its first approval for a genetically engineered (GE) animal intended for food, AquAdvantage Salmon, in November The agency also issued two guidance items for manufacturers who wish to label their products voluntarily as containing ingredients from GE or non-ge sources In November 2015 USDA s Food Safety and Inspection Service (FSIS) released a final rule establishing an inspection programme for fish under the order Siluriformes, including catfish. The final rule, which applies to both domestically-raised and imported Siluriformes fish, was developed in order to implement provisions required by the 2014 Farm Act. The rule will become effective in March 2016, when all Siluriformes fish, including catfish, will be under the regulatory jurisdiction of FSIS and no longer 238

239 regulated by the US Food and Drug Administration (FDA). Before the effective date of the final rule, countries that wish to continue exporting products to the United States must provide a list of establishments that currently export, as well as written documentation of their regulatory authority and compliance with existing FDA import requirements. 239

240 PSE GSSE TAD/CA/APM/WP(2016)12/FINAL 23. VIET NAM Support to agriculture 626. The level of support to agriculture fluctuates, largely driven by changes in market price support (MPS). An average for was just 0.6%, but it hides varied results across commodities. While producers of import-competing commodities, such as sugar and beef, benefit from tariff protection, producers of several exported commodities are implicitly taxed. Rice producers benefit from a price support system based on target prices designed to provide farmers with a profit of 30% and from direct payments per hectare, tied to maintaining land in rice production. The Total Support Estimate (TSE) is low at 0.5% of GDP. Within the General Services Estimate, the development and maintenance of infrastructure, in particular irrigation, is by far the most important component. Figure Viet Nam: Level, structure and evolution of agricultural support Panel A. Total Support Estimate and its main components ( average) Billion VND Producer Support Estimate General Services Support Estimate Knowledge Inspection and control Infrastructure Other MPS, outputs and inputs Other payments requiring production Other Billion VND Panel B. Producer support estimate as % of gross farm receipts (%PSE), Source: OECD (2016), "Producer and Consumer Support Estimates", OECD Agriculture Statistics (database), %PSE Viet Nam OECD Main policy changes 627. In 2015, basic domestic policy instruments remained unchanged, but Viet Nam continued to be active in pursuing trade liberalisation through regional and bilateral trade agreements. In particular, Viet Nam together with eleven other countries successfully concluded negotiations on a Free Trade Agreement (FTA) within the Trans-Pacific Partnership Agreement (TPP). Viet Nam also signed an FTA with the European Union. While both agreements still need to be ratified, when implemented, they will have widereaching implications for all sectors of the Vietnamese economy, including for agriculture. In addition, Viet Nam signed an FTA with the Euroasia Economic Union and the FTA with Korea as well as the agreement on the creation of an ASEAN Economic Community came into force at the end of the year. 240

241 Assessment and recommendations Over the next ten years, both domestic and international conditions will be more challenging for Viet Nam s agricultural sector than they were over the previous two decades. Prices of many commodities exported by Viet Nam declined over recent years from the peaks seen in and are projected to fall further in real terms over the medium term. Most of the easy sources of lifting production, e.g. expanding land area, employing more cheap labour and using higher rates of fertilisers, have been fully exploited and negative environmental impacts are increasingly seen. These will become major challenges for Viet Nam, but will also open opportunities to adopt new technologies, to give incentives for larger farms and to focus attention on quality and higher value added products. To improve the enabling environment for agriculture, the re-allocation of factors of production across sectors should be eased and constraints on investment alleviated. Likewise, agricultural institutions and governance systems should be improved by: strengthening of institutional co-ordination between the Ministry of Agriculture and Rural Development and other relevant ministries implementing programmes supporting agriculture; reinforcement of the transparency and accountability of publicly-funded programmes; founding policy decision on adequate and accurate information; and integrating monitoring and review mechanisms into the policy process. To improve the allocation of scarce land resources, farm consolidation could be encouraged, including through various forms of co-operation between farmers, and restrictions on crop choice should be removed. Moreover, the scope of compulsory land conversions should be limited and compensations for such conversions should be based on open market land prices. To limit the scope of social conflicts and corruption in the land administration, participatory land use plans could be encouraged and direct transactions between land users without state involvement should be allowed. While the waiver of irrigation service fees has increased farmer income, it has several negative side effects. It has reduced the incentive for farmers to save water; it has made the national budget fully responsible for financing operation and maintenance costs in addition to capital investment; and it diminished incentives for irrigation and drainage management companies to provide quality irrigation services. While the government could remain responsible for all capital investment in the irrigation systems, farmers should cover operation and maintenance costs. Re-establishing a water fee based on a per unit of water charge rather than a per hectare charge, as previously applied, would encourage greater water use efficiency. 241

242 Table Viet Nam: Estimates of support to agriculture 242