Lessening crop support as great boost
Oct. 15, 2013
At a time when the European Union’s Parliament is formally approving the broad outline of its revised Common Agricultural Policy and the U.S. Congress has still not come to grips with basic farm supports going forward from here, it seems especially appropriate for the grain-based foods industry to pay heed to the gradually declining role of governments in influencing the grain economy. After all, it was as recent as the late 20th century when farm programs, notably export subsidies, had nearly as much to do with prices and trade flows of grain as did basic supply-demand. The opening of the 21st century ought to be hailed as marking the happy end of export subsidies, which played such havoc with the functioning of markets, and the start of sound agricultural policies.
Thanks to the global watch-dog role of the Organization for Economic Cooperation and Development (O.E.C.D.) in monitoring agreed cutbacks in governmental intrusions, a good measure is available to judge what has occurred. It primarily relies on the Producer Support Estimate (P.S.E.), which for each country gauges how much of farmer income comes from government-provided supports. Overall, the O.E.C.D. estimates that about a fifth of producer revenues in its member countries, comprising the developed world, stems from public policies. This is the all-time low that was first reached in 2010. It sharply contrasts with the global P.S.E. averaging 30% for the 1995-97 period and 37% for 1986-88.
While year-to-year declines are described as relatively modest when it comes to changes in how agriculture is helped by government, a relatively sharp fall occurred across-the-board from levels in the last half of the 1990s. On a national basis, the P.S.E. currently varies from a low of 0.6% to 4% in Australia and Chile to a peak of 50% to 67% in Japan, Korea and Iceland. Among countries where grain is an important crop, the range of government support varies from 9% of producer income in the United States to 25% in Turkey.
Examining the downward trend in government support for agriculture requires examining the way these reductions have been accelerated by the high market prices of recent years. These elevated prices in most countries automatically mean lower levels of governmental support. That is especially the case in O.E.C.D. countries where agricultural prices are usually well above the global average, in one recent year by as much as 11%. Many support programs are based on income or price targets that are themselves directly impacted by market prices. These are usually called counter-cyclical. High market prices also lessen political pressures that may be present to increase aid for farmers, while the mounting popularity of regional and bilateral trade agreements means negotiations that often lead to less governmental support for farmers.
Perhaps the most positive aspect for global grain markets in these program declines has been decoupling of supports from being applied to specific crops. Instead of wheat and corn growers being guaranteed a specific price, as was common a half century ago, most programs today are based on factors like acreage size, farm income or receipts and animal numbers. For the O.E.C.D. nations in total, decoupled supports currently account for 39% of government aid, compared with only 9% in 1986-88. In the E.U., it is estimated that 65% of receipts paid by government do not relate to specific crops.
Seeking to determine whether taxpayers or consumers have gained the most from this lessening governmental role offers some valuable insights. It appears that taxpayers have certainly benefited greatly. Many governments have slashed and continue to cut their outlays on agriculture, even at the expense of worthwhile research and development budgets. Yet, even with elevated market prices, it is consumers who continue to enjoy the benefits of freer trade and markets relieved of costly governmental intrusions. Farmers also have enjoyed much due to these changes. Yes, the declining governmental role has been beneficial all around.