Scenario of agricultural policy reform: Impact assessment based on OECD s PEM Model

Transcription

1 Scenario of agricultural policy reform: Impact assessment based on OECD s PEM Model OECD-ATPC-ICTSD Workshop, 27 October 2016 Agro-Food Global Value Chains and Farm Policy: The place of China Shingo Kimura, Agriculture Policy Analyst, OECD Wusheng Yu, Associate Professor, University of Copenhagen

2 2 What is OECD s Policy Evaluation Model (PEM)?

3 3 OECD s Policy Evaluation Model (PEM) as a tool to measure impacts of policies in the PSE database OECD PSE database records the transfer between consumer, taxpayer and producers, but does not show the policy impact PEM is a partial equilibrium model based on the PSE database, developed to connect PSE database and its economic outcome This analytical tool has been used intensively for country studies, Monitoring and Evaluation report and thematic work such as decoupling The model covers US, Canada, Mexico, EU, Switzerland, Japan and Korea China module is under development

4 4 PEM provides indicators of policy performance Indicator Production Consumption Net trade Taxpayer costs Consumer impacts Farm welfare Input suppliers effects Transfer efficiency Definition of measure Change in volume of production Change in volume of consumption Change in volume of net trade Total change in government costs/receipts Change in consumer surplus Change in returns above opportunity costs to land, cows, other farm owned factors, and dairy quota (net household income from farming) Change in returns above opportunity costs earned by suppliers of purchased factors Farm welfare / (Taxpayers + Consumers costs)

5 5 What is the reform scenario of agricultural policy in China?

6 6 Overall direction of China s agricultural policy reform Price support Direct payment Payment based on input use/price Area based payment Payment based on single commodity production Commodity-wide decoupled payment Increasing agrienvironmental payment

7 7 What is the market and welfare impact of reform scenarios?

8 8 Scenario 1: Reducing price support complemented by one of the direct payments: Market effect Impact on wheat market Input use 20% reduction in wheat price support (CNY 194 billion) Complemented by.. 1. output payment (CNY 97 billion) or 2. coupled area payment (CNY 97 billion) or 3. decoupled area payment (CNY 97 billion) Production Domestic price World price Self sufficiency (change in % points) Chemical (%change) Fertilizer

9 9 Scenario 1: Reducing price support complemented by one of the direct payments: Welfare effect 20% reduction in wheat price support (CNY 194 billion) Complemented by.. 1. Output payment (CNY 97 billion) or 2. Coupled area payment (CNY 97 billion) or 3. Decoupled area payment (CNY 97 billion) Producer Input supplier Consumer Change in CNY billion Tax payer Net welfare change

10 10 Scenario 2: Replacing coupled area payment with decoupled payment: Market effect Impact on wheat market Input use Abolishing current area payments (CNY billion) Replaced by. Decoupled area payment (CNY billion) Production Domestic price World price Self sufficiency (change in % points) Chemical (%change) Fertilizer

11 11 Scenario 2: Replacing coupled area payment with decoupled payment: Welfare effect Producer Input supplier Consumer Tax payer Net welfare change Change in CNY billion Abolishing current area payments (CNY billion) Replaced by.. Decoupled area payment (CNY billion)

12 12 Implication for future reform Price support is boosting production at the cost of intensive input use. A large part of welfare is captured by input suppliers Shifting from price support to more decoupled direct payment can support farm income with less cost, while mitigating the environmental pressure. However, the level of self-sufficiency drops as the payments are more decoupled Converting coupled area payment to decoupled area payment increases farm income and reduces environmental pressure with relatively small impact on self-sufficiency level. The reform is WTO compatible. Policy change in China has a considerable impact on world market.

13 Contact us We look forward to hearing from you! Access all of the information from the Trade & Agriculture Directorate at: You can reach us via by sending your message to the following address: We invite you to connect with us on Twitter by following