Measuring Distortions in International Markets: The Agriculture Sector

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agriculture policy brief

Measuring distortions in international markets: the agriculture sector

June 2020

Many agricultural policies today are not well-aligned with stated government objectives to increase agriculture productivity growth, enhance environmental performance, and improve farm household resilience and well-being. By adopting new policy approaches, governments have an opportunity to achieve their objectives more effectively while at the same time reducing international market distortions. Of the USD 536 billion provided annually in public support to farmers, about two-thirds is provided through measures that strongly distort farm business decisions - thereby distorting global agricultural production and trade. At the same time, some countries implicitly tax their farmers an estimated USD 89 billion a year. Policies that keep domestic agriculture prices above international price levels impose a high burden on less well-off consumers, reduce the competitiveness of the domestic food industry, and increase the income gap between large and small farmers. While agricultural productivity continues to grow, the environmental performance of the sector is mixed and greenhouse gas emissions per hectare are growing in most countries. In the midst of the COVID-19 pandemic, many countries are responding with measures to ensure that food supply chains can operate effectively and that temporary assistance is provided to the most vulnerable. As the pandemic spreads to less developed parts of the world, international cooperation will be needed to help avoid an increase in global hunger and malnutrition. Looking ahead, governments can re-direct much of the current policy effort towards highreturn investments in innovation systems, in hard and soft infrastructure, in climate and environmental measures, and in enabling more resilient food systems – including by ensuring that input and output markets can operate effectively.

What’s the issue? In a context of global trade tensions and new pressures on food supply chains arising from the COVID-19 pandemic, there is an urgent need to begin updating the international trade rule-book to better address concerns about unfair competition in the global economy. Updating these rules requires comprehensive information on the nature, scope and likely impact of current and alternative policies that can distort markets and detract from a level international playing field. The OECD has longstanding work measuring government support in agriculture, fossil fuels, and fisheries and has recently estimated support and related market distortions in the aluminium value chain. In addition, the OECD maintains up to date regulatory information

www.oecd.org/agriculture

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and indicators on trade facilitation, non-tariff measures, export restrictions in the raw materials sector, and trade restrictions in services sectors. All of these evidence gathering exercises cover, at a minimum, OECD countries and key emerging economies. Within this overall context, this note describes the main features of government support and related market distortions affecting the agriculture sector. The sector is facing huge challenges globally: to feed a growing and more affluent population; to contribute to inclusive growth and prosperity, in particular in rural and less developed regions; to provide a decent livelihood for the hundreds of millions of families who depend on it; to adapt to climate change and contribute to mitigation; to

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