Agricultural Policy Reform in an International Context

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Agricultural Policy Reform in an International
Context

• Stefan Tangermann
• Director for Food, Agriculture and Fisheries

IAMA Conference, Swiss Agri-Food Chain Platform
Montreux, 13 June 2004
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(No Transcript)
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Core Messages

• A "no policy" approach would not work for
  agriculture and food
• Many current policies are not doing a good job
• Policy imperatives differ across countries
• International context facilitates policy reform
• Food industry and agribusiness benefit from
  policy reform

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Policies Are Needed

• Most issues in agriculture and food can be left
  to market forces
• But policies are needed to deal with issues such
  as
• equity rural poverty
• externalities environment
• public goods biodiversity food security
• information asymetries food safety

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Policies Are Highly Active

• Many OECD countries indeed intervene heavily in
  agriculture and food sector
• Intensity and nature of policies differ much
  across countries
• but there are also striking similarities

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Farm Support in OECD Countries(US 257 billion
in 2003)
Switzerland
Japan
EU
OECD
USA
Australia
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Composition of Producer Support, OECD
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Many Current Policies Are Not Doing a Good Job

• Dominance of price and output support
• which is not efficient in pursuing objectives
  related to
• farm income
• non-trade concerns

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Why Border Protection is Inadequate Farm Income
Policy

• Price support is
• unneccessaryfarm household incomes not
  generally low
• inefficient 1 of extra price support transfers
  only 0.25 to farm income
• inequitablelargest farms receive most support

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Non-Trade Concerns Multifunctionality

• Governments identify worthy objectives
• environment, landscape, biodiversity
• food security, heritage, rural development
• But few measures target these objectives
• and production-linked support can offset
  desired impacts

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Strong Policy Conclusion Decoupling and
Targeting

• Decouple support from production
• Define policy objectives carefully
• Target measures directly to objectives
• Reduce levels of support
• Many OECD policies are not yet in line with
  these suggestions

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Policy Imperatives Differ Across Countries

• Physical, economic, social conditions differ
• History is an important determinant
• Political environment is crucial
• Netherlands and Switzerland are interesting cases
  in point

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Variatio Delectat

• Dutch history of emphasis on value added
• Priority for institutions, productivity
• Full exposure to international markets
• Rapid shift to environmental concerns
• Swiss starting point fundamentally different
• but policy changes underway

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Composition of Farm Support Switzerland
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Composition of Farm Support in 2003OECD
Countries
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Progress in Policy Reform
1986-88
Japan
OECD
EU
2001-03
USA
Switzerland
Canada
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Retreat from Dairy Quotas in Switzerland as an
Example of Reform

• Quotas are most entrenched policy instrument
• But run against spirit of market economy
• ... and inhibit competitiveness
• Government saw need for change
• ... particularly in the context of EU trade
• Provided convincing analysis
• Created political base for change
• ... and managed to secure agreement

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WTO Negotiations Unique Opportunity

• International pressure is strong
• Developing country interests pronounced
• Comprehensive agenda
• Multilateral reform reduces adjustment needs
• Political and economic gains can be large

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What Are Reform Implications for Food Industry,
Agribusiness?

• Open markets facilitate sourcing, location
  decisions
• Global volume of agricultural production is not
  much affected
• Liberalization creates income growth
• Competition is based on company strength, not
  government interference
• Removal of policy uncertainty is beneficial

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Conclusions

• A "no policy" approach would not work for
  agriculture and food
• Many current policies are not doing a good job
• Policy imperatives differ across countries
• International context facilitates policy reform
• Food industry and agribusiness benefit from
  policy reform