Agricultural Policy Monitoring and Evaluation 2017

OECD

• Publisher: OECD
• Year: 2017
• eBook ISBN: 9789264288881
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Chapter 1. Developments in agricultural policy and support1

The key economic and market developments which provide the framework for the implementation of agricultural policies are analysed in the first part of this chapter. Then the developments in the estimated support (using the OECD Producer Support Estimate methodology) are evaluated in terms of its level, composition and changes over time in OECD countries and the emerging economies included in this report. Within this part, highlights of the main recent changes and new initiatives in agricultural policies in 2016-17 in OECD countries and key emerging economies covered in this report are also presented. The chapter also focuses on changes in the single commodity focus of support as support targeting individual agricultural commodities still represents the largest component of support to farmers. The chapter ends with assessment of support and policy reforms and related recommendations.

Key economic and market developments

Conditions in agricultural markets are heavily influenced by macro-economic variables such as global GDP growth (which supports demand for agricultural commodities) and the price of crude oil (which determines the price of several inputs into agriculture, and influences demand for cereals, sugar crops, and vegetable oils through the market for biofuels) (OECD/FAO, 2017).

Global GDP growth remained low in 2016 at 2.9%, down from 3.1% in 2015 and the slowest growth rate since 2009 (Table 1.1). Growth in the OECD economies slowed to 1.7% in 2016, and was mainly driven by private consumption and, to a lesser extent, government consumption and investment.2 In the United States, GDP growth was weak at 1.5% compared with 2.6% in 2015, as the fall in oil prices led to a sharp decline in the energy sector, an appreciation of the dollar hurt exports and manufacturing investment, and inventories were drawn down. Growth in the Euro area and Japan continued to improve in 2016 but remained modest. Modest GDP growth in the Euro area (1.7%) reflected weakness in both exports and domestic demand, while the recovery in Japan (0.8%) was led by consumer spending, supported by wage growth (OECD, 2016a). There are signs that growth has stabilised in non‐OECD economies, helped by signs that Brazil and the Russian Federation are emerging from recession. Growth in the People’s Republic of China (hereafter, “China”) continued to gradually decline from a high level.

Table 1.1. Key economic indicators
OECD area, unless otherwise noted
	Average 2004-13	2014	2015	2016
	Per cent
Real GDP growth1
World2	3.9	3.3	3.1	2.9
OECD2	1.6	1.9	2.1	1.7
United States	1.6	2.4	2.6	1.5
Euro area	0.8	1.2	1.5	1.7
Japan	0.8	0.0	0.6	0.8
Non-OECD2	6.6	4.6	3.8	4.0
Brazil	4.0	0.1	-3.9	-3.4
China	10.3	7.3	6.9	6.7
Colombia	4.8	4.4	3.1	2.1
Indonesia	5.7	5.0	4.8	5.0
Russia	4.1	0.7	-3.7	-0.8
South Africa	3.3	1.6	1.3	0.4
Output gap3	-0.5	-2.1	-1.5	-1.4
Unemployment rate4	7.1	7.4	6.8	6.3
Inflation5	2.0	1.6	0.7	1.0
World real trade growth	5.3	3.9	2.6	1.9
1. Year-on-year increase; last three columns show the increase over a year earlier.
2. Moving nominal GDP weights, using purchasing power parities.
3. Per cent of potential GDP.
4. Per cent of labour force.
5. Private consumption deflator. Year-on-year increase; last 3 columns show the increase over a year earlier.
Source: OECD (2016a), OECD Economic Outlook, Vol. 2016/2, OECD Publishing, Paris. Last updated November 2016, http://dx.doi.org/10.1787/eco_outlook-v2016-2-en.
StatLink http://dx.doi.org/10.1787/888933508735

Global trade growth remained exceptionally weak at 1.9% in 2016, below global GDP growth for the second consecutive year (Table 1.1). Import volume growth in the emerging and developing economies was particularly weak. This slowdown has occurred independently of the continuing trend of declining imports into China – domestic sourcing of both intermediate and final goods is growing in China, as domestic Chinese producers become more sophisticated and able to supply a wider array of higher quality products. While demand factors play a role, weak trade also reflects structural factors and a lack of progress – together with some backtracking – on the opening of global markets to trade in goods and services.3 Moreover, cyclical factors, including the deep recessions in some commodity producing economies and the widespread weakness of fixed investment have compounded structural problems (OECD, 2016a).

Figure 1.1. Commodity world price indices, 2007 to 2016

Notes: The top part of the graph relates to the left scale, while the bottom part of the graph should read from the right scale. Base year is 2002-04.

Source: IMF (2016), Commodity Market Review, Washington, DC: The International Monetary Fund for all commodities, food and energy indices, www.imf.org/external/np/res/commod/index.aspx; FAO (2016), FAO Food Price Index dataset, Rome: for meat, dairy and cereal indices. Base year is 2002-04, www.fao.org/worldfoodsituation/foodpricesindex/en/.

StatLink http://dx.doi.org/10.1787/888933506417

World prices for primary non-agricultural commodities rose in 2016 (Figure 1.1). Energy prices increased 68% between January 2016 and January 2017. Crude oil prices picked up at the end of 2016 after a steep drop that began in mid-2014. This followed an agreement by both OPEC and non-OPEC producers to reduce output by nearly 1.8 million barrels a day in the first half of 2017. However, the average annual price was 16% below 2015 levels. Demand for biofuels was sustained by obligatory blending and by higher demand for fuel due to low energy prices. Fertiliser prices rose 2% in the fourth quarter, up for the first time in eight straight quarters. However, the only product to experience a price increase was urea, on strong demand and a sharp drop in Chinese exports. Other products (phosphates and potash) continued their extended price declines (World Bank, 2017).

Food prices rose by almost 14% between January 2016 and January 2017. Prices of all dairy products surged during the second half of 2016, in particular for fat-based products, following sharp declines from 2013-14 highs, which stemmed from a contraction in demand and excess supply. Global demand strengthened in 2016, while production in major exporters – Argentina, Australia, and New Zealand – shrank due to adverse weather conditions. Prices of all dairy products were 33% higher in January 2017 than in January 2016, however, the average price in 2016 was lower than in 2015.

Meat prices also rose in 2016, but remained below the peak reached in the second half of 2014. Production of poultry and bovine meat expanded while pig meat and sheep meat production declined. Relatively low feed costs and growing livestock inventories contributed to decreasing prices. International sugar prices remained at a relatively high level sustained by tight market conditions.

In contrast, cereals prices continued to decline as world production reached a historical high in 2016, especially for wheat and maize following bumper crops in key exporting cou...

Table of contents

• Title page
• Legal and rights
• Foreword
• Acknowledgements
• Reader’s guide Definition of OECD indicators of agricultural support
• Executive summary
• Chapter 1. Developments in agricultural policy and support
• Chapter 2. Country snapshots
• About the OECD