Tangermann

Decoupling and the Future of Agricultural Policies: 

Decoupling and the Future of Agricultural Policies Stefan Tangermann Director for Food, Agriculture and Fisheries Prague, 22-23 September 2006 EAAE Seminar

Farm Policies on the Way Forward: 

Farm Policies on the Way Forward Farm support has a long history ... and deep political roots Policy reform is slow, but real Decoupling gains ground What has it achieved? What comes next?

Outline: 

Outline Policy reform: How much progress? Why decouple? How effective is decoupling? What is the role of decoupled payments? Towards a new policy paradigm Conclusions

1. Policy Reform: How Much Progress?: 

1. Policy Reform: How Much Progress?

Producer Support in Percent of Gross Farm Receipts: 

Producer Support in Percent of Gross Farm Receipts Japan China EU USA OECD New Zealand Switzerland Source: OECD Brazil South Africa

Composition of Producer SupportOECD average: 

Composition of Producer Support OECD average Source: OECD more 'decoupled' policies

Share of more ‘decoupled’ policies in PSE : 

Share of more ‘decoupled’ policies in PSE OECD USA EU Canada Japan Source: OECD Switzerland

2. Why decouple?: 

2. Why decouple?

Traditional policies ran into trouble: 

Traditional policies ran into trouble Historically, price support behind tariff barriers appeared politically attractive ... and output payments worked reasonably well ... until problems arose surplus production, 'mountains', expenditure supply management export subsidies trade negotiations

Decoupling became a political option: 

Decoupling became a political option … and the Uruguay Round 'green box' helped However, the motivation differed from case to case, for example: EU: Uruguay Round, preparations for DDA Mexico: NAFTA US: safeguarding payment levels

… and decoupling is good economics: 

… and decoupling is good economics Decoupling can … strengthen market orientation reduce market and trade distortions reduce environmental damage raise sector competitiveness improve income effectiveness of support (transfer efficiency)

3. How effective is decoupling?: 

3. How effective is decoupling?

Distortions are reduced, but all support has some effect on production: 

Distortions are reduced, but all support has some effect on production Even ‘decoupled’ programmes can affect production through changing land prices affecting product mix altering production risks reducing farmers' risk aversion influencing investment decisions expectations of future policies Decoupling is a matter of degree Programme size matters static effects risk effects dynamic effects

Measuring the effects of decoupling: 

Measuring the effects of decoupling ... is difficult, because of complexity of factors/mechanisms involved ... and noise in data OECD work has highlighted some results of empirical studies ... and generated model-based simulations

Trade and Income Effects of Alternative Policy Instruments: 

Input payment Output payment Area payment, hist. ent. Area payment, coupled Price support Trade and Income Effects of Alternative Policy Instruments Source: OECD

Production Effects – Alternative Studies: 

Production Effects – Alternative Studies Source: OECD

4. What is the role of decoupled payments?: 

4. What is the role of decoupled payments?

Decoupling as a concept has its greatest force in the context of policy reform: 

Decoupling as a concept has its greatest force in the context of policy reform Decoupling means policies are reformed to make them less distorting of production and trade improve their performance … while preserving flows of benefits Thus, policy continuity is possible while addressing the negative impacts Making reform more palatable to affected groups

But major issues remain: 

But major issues remain 'Decoupled' payments are typically linked to land Area-based payments continue to increase land values New entrants must “buy” the value of the programme when buying land Payments benefit landowners, not operators Existing inequalities across commodities and farms are locked in

… and perspectives lack clarity: 

… and perspectives lack clarity (Partial) decoupling has reduced past problems … but payments still reflect policies of the past … and their future is uncertain Is there any long-term justification for decoupled payments?

Policy in search of a new paradigm: 

Policy in search of a new paradigm Imagine a world without pre-existing agricultural policies Would anyone suggest introducing programmes like current 'decoupled' payments? Is cross-compliance more than an afterthought, to provide political justification?

5. Towards a new policy paradigm: 

5. Towards a new policy paradigm

What do governments want to achieve?: 

What do governments want to achieve? Agricultural policies have many objectives, e.g. competitiveness social balance environment, landscape, biodiversity heritage, rural development food security, energy security ‘Decoupled’ payments derived from past programmes do not yet match such priorities Distinction between commmodities and non-commodity outputs is important

Non-commodity outputs (NCOs): 

Non-commodity outputs (NCOs) Where desired NCOs cannot be sold through markets ... government policy may be needed But more thought is required, to … … identify non-governmental approaches … define property rights to natural resources … promote corporate social responsibility of farmers

Targeting as principle for future policy: 

Targeting as principle for future policy Where government policies are needed, they should be well targeted and … … have clear goals and beneficiaries … be tailored to the objective, in scope, amount and duration Any adjustment assistance should facilitate change – not prevent it

From decoupling to targeting: 

From decoupling to targeting Converting broad based 'decoupled' payments directly into targeted policies is difficult Cross-compliance cannot really do the trick Phasing out 'old' payments while phasing in targeted measures is more effective … and fully in line with the principle that compensation for policy reform should be limited in duration But progress towards targeting has been slow

Share of ‘targeted’ policies in PSE (payments on input constraints, overall farm income, miscellaneous payments): 

Share of ‘targeted’ policies in PSE (payments on input constraints, overall farm income, miscellaneous payments) OECD USA EU Canada Japan Source: OECD Switzerland

Decoupling increased more than targeting: 

Decoupling increased more than targeting 1986-88 2003-05 EU USA OECD Canada Switzerland Japan

6. Conclusions: 

6. Conclusions 'Protection and support' policies are outdated Decoupling is a highly beneficial element of policy reform – for some time Targeting as new paradigm will obtain benefits for the public express society's responsibility towards agriculture …and farmers' responsibility towards society Domestic interest and trade priorities go hand in hand