Bloomberg News

EU’s Farm-Policy Reforms Reduced Market Distortion, OECD Says

October 05, 2011

Oct. 5 (Bloomberg) -- European Union agricultural-policy overhauls in the past two decades reduced the share of the most market-distorting support and lowered the portion of aid in farmers’ incomes, the OECD said.

Assistance that was potentially most distorting fell to 29 percent of estimated producer support in the 2008-10 period from 92 percent in 1986-88, the Paris-based Organization for Economic Cooperation and Development said in a report published today. That category includes measures such as price support and output-based payments.

The European Commission, the EU’s executive arm, will propose changes next week to the 27-nation bloc’s Common Agricultural Policy. The EU spent 58.2 billion euros ($77.4 billion) on agriculture and rural development in 2010, according to commission data.

CAP reforms “have substantially and continuously increased the market orientation of the sector,” the OECD said in its report, “Evaluation of Agricultural Policy Reforms in the European Union.” The share of most-distorting payments is set to fall to 27 percent in 2012, according to the study.

The least-distorting farm payments, which have no link to production, rose to a 44 percent share in 2008-10 from zero in 1986-88, according to the OECD. Such support will account for 46 percent of EU agricultural aid next year, the organization said.

New Rules

“Negative trade effects of the CAP decreased significantly as commodity regimes were gradually reformed,” the OECD said.

Future changes should continue to increase the market orientation of EU agriculture and reduce distortions, mainly from remaining market-price support, the OECD said.

Changes to EU policies mean more land is used for pasture than would have been the case without reform, the OECD said. Combined with smaller herds and lower fodder yields, that has reduced livestock density in the EU, it said.

“While the policy mix favored arable crops over livestock at the beginning of the period, successive reforms have increased support to pasture,” the OECD said.

Grain and oilseed prices within the bloc have increased as output declined, according to the OECD.

“As production on marginal land is abandoned, cereal yields increased, but production decreased and this led to higher domestic prices for cereals,” the OECD said. “The same impacts are found for the oilseed sector.”

The area planted with durum wheat, protein crops and tobacco showed a “sharp decrease” as specific premiums for those crops were abandoned, the OECD said.

--Editors: Dan Weeks, John Deane.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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