Rural Laws: October, 2002 - Number #17

The OECD released its fifteenth annual report on farm subsidies in June 2002, and reported that farmers in the world's richest 30 countries received $311 billion in aid in 2001, including $233 paid to farmers.

The OECD calculates four measures of governmental support for agriculture: (1) producer support estimate, which is the monetary value of transfers from taxpayers (payments) and consumers (higher prices) to farmers (PSE is often expressed as a percentage of farm receipts, so that 35 percent PSE means that government support for farmers is equivalent to 35 percent of their receipts); (2) consumer support estimate, the monetary value of transfers to or from farm producers-this is negative when consumers subsidize producers; (3) general services support, an estimate that includes taxpayer costs for research and promotion of farm commodities and agriculture's use of infrastructure; and (4) the total support estimate, which is the net value of support for agriculture- the TSE is sometimes expressed as a percentage of GDP.

On average, OECD countries transfer 1.3 percent of their GDPs to agriculture. The GDP of the 30 OECD countries is $24 trillion, so each one percent is $240 billion. The highest share-of-GDP transfers to farmers were in Turkey and Korea, where about five percent of GDP was transferred to agriculture in 2001; the EU transferred about two percent of GDP to agriculture, and the US about 1.5 percent. In the US, 47 percent of commodity payments went to farmers whose household income was more than $135,000 in 2000.

The TSE in 2001 was $311 billion, and three-fourths went to producers--PSE was $233 billion, or 31 percent of the value of farm receipts- 70 percent of PSE was payments to farmers, which usually take the form of guaranteeing farmers higher than world market prices for their commodities. The prices paid to farmers in the OECD countries were on average 31 percent over world prices, and farm receipts in OECD countries were 45 percent higher than they would have been if there were no government intervention in agriculture.

The most closely watched measure of government support for agriculture is the PSE, which ranged from one to four percent in New Zealand and Australia to 60 percent or more in Japan, Korea, Norway and Switzerland. The EU PSE averages 35 percent; the US and Canada PSE averages 20 percent. The commodities for which PSEs were largest and most trade distorting were rice (PSE of over 80 percent), and lamb, sugar, and milk (PSEs of about 50 percent).

An average eight percent of the labor force is employed in agriculture in OECD countries, down from 10 percent in the late 1980s. Agriculture employs two to five percent of workers in most OECD countries, such as the US and the EU, but 17 percent in Mexico, 19 percent in Poland and, and 45 percent in Turkey. Food processing employs an another two percent of the work force in OECD countries. Farm commodities are three percent of OCED exports- 36 percent in New Zealand, and less than one percent in Japan. Agriculture occupies an average 40 percent of the land and uses an average 44 percent of the water in OECD countries.

Spending on food (as a percent of consumer expenditures) averaged 11 percent in OECD countries, and ranged from 23 percent in Mexico to six percent in the US; EU residents spent 11 percent.

Mexico. Mexico's Procampo program has since 1996 made payments to farmers based on their historical production- to receive payments, farmers must farm the land, or put it into an environmental reserve. Procampo payments are about 800 pesos ($85) per hectare, and were $1.2 billion in 2001 for 14 million hectares. Mexico's PSE was 19 percent in 2001.

Mexico's Secretariat for Agrarian Reform allows ejido (communal land owners) to receive title to their share of the land and then buy , sell, or rent it, provided that two-thirds of ejido members agree.

Mexico traditionally guaranteed prices for basic crops such as corn that were well above world prices. Mexico changed its price support policies, and today a "consensus" price is negotiated in each state, for instance, $118 per ton of white corn in Sinaloa in 2001; the support payment was $48 a ton.

Under the Progresa program, free tortillas are distributed to poor families.

Mexico's sugar industry in 2001 employed about 300,000 people, including 90 percent in cane production and 10 percent in milling. Almost 60 percent of sugar cane is grown on ejido land, and the average size of sugar farms is only four hectares, or 10 acres-40 percent of Mexican sugar cane is in Veracruz.

OECD. 2002. Agricultural Policies in OECD Countries. Monitoring and Evaluation 2002. Paris. www.oecd.org