OECD S PRODUCER SUPPORT ESTIMATE AND RELATED INDICATORS OF AGRICULTURAL SUPPORT

Transcription

1 TRADE AND AGRICULTURE DIRECTORATE OECD S PRODUCER SUPPORT ESTIMATE AND RELATED INDICATORS OF AGRICULTURAL SUPPORT Concepts, Calculatons, Interpretaton and Use (The PSE Manual) September 2010

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3 Acknowledgements ACKNOWLEDGEMENTS A large number of contrbutors partcpated n the preparaton of the manual. Darryl Jones developed the structure and prepared many chapters and sectons. Olga Melyukhna from the OECD Secretarat co-ordnated the project and was the author of several sectons. Other substantve contrbutors from the OECD Secretarat were: Carmel Cahll, Andrea Cattaneo, Dmtrs Dakosavvas, Hsn Huang, Joanna Komorowska, Wlfrd Legg, Roger Martn, Catherne Moreddu, Frank van Tongeren and Vaclav Vojtech. The Manual has benefted from an n-depth revew by Ken Ash, Carmel Cahll, Wlfrd Legg and Stefan Tangermann. Jesús Antón, Alexandra de Matos Nunes, Shngo Kmura, Andrzej Kwecnsk, Juss Lankosk, Laetta Relle and Monka Tothova also revewed the text and made detaled comments. Helpful comments and suggestons were receved from several external revewers, Ekaterna Gataulna from the All Russan Insttute of Agraran Research and Informatcs, Pret Hen from the Estonan Insttute of Economc Research, and Antono Luz Machado de Moraes from the Brazlan Mnstry of Agrculture, Lvestock and Food Supply. The draft outlne and consequent draft versons of the Manual were dscussed at the 42 nd, 44 th and 46 th sessons of the Workng Party on Agrcultural Polces and Markets of the OECD Commttee on Agrculture n 2007 and Ken Thomson from the Unversty of Aberdeen, Scotland UK edted the manual and provded substantve comments and recommendatons on presentaton of the materal. Mchèle Patterson from the OECD Secretarat provded edtoral and techncal assstance at all stages n the preparaton of ths manual. Ths document was prepared wth a fnancal contrbuton from the European Unon. The vews expressed heren do not reflect the offcal opnon of the European Unon. Contact person: Olga Melyukhna (olga.melyukhna@oecd.org) THE PSE MANUAL OECD

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5 TABLE OF CONTENTS Acronyms and abbrevatons... 9 Symbols used n formulas PART I. MAIN CONCEPTS Chapter 1. Introducton Objectves Target readershp Structure Chapter 2. Overvew of the OECD ndcators of agrcultural support Why measure agrcultural support? Overvew of support ndcators: key terms, defntons and dstnctons Basc prncples of measurng support Annex 2.1. A short hstory of the ndcators Chapter 3. Identfyng, dstngushng and classfyng polces Identfyng polces that support agrculture Dstngushng between polces accordng to economc group Classfyng and labellng polces that support producers ndvdually (PSE) Defnton of categores and sub-categores Classfcaton crtera Defnton of labels Work examples Classfyng polces that support producers collectvely (GSSE) Defnton of categores and classfcaton crtera Dscusson Classfyng polces that support consumers (CSE) PART II. CALCULATING SUPPORT INDICATORS Chapter 4. Estmatng polcy transfers: prce transfers Prce transfers arsng from polcy measures: a graphcal analyss Prce transfers to producers Prce transfers from consumers Market Prce Dfferental (MPD) Calculatng an MPD based on the prce gap method General approach Selectng a border prce Marketng margn adjustment Weght adjustment Qualty adjustment Alternatve methods for calculatng an MPD Work examples Annex 4.1 Methodology for calculatng the border prce for mlk THE PSE MANUAL OECD

6 Chapter 5. Estmatng polcy transfers: other transfers Budgetary transfers Complete coverage of nsttutons, admnstratve levels and fnancng nstruments Accountng of effectvely dsbursed funds Treatment of polcy admnstraton costs Avodng double-countng of support: an example of outlays on prce regulaton Attrbuton of budgetary allocatons to calendar years Classfcaton of budgetary spendng Support based on revenue foregone Tax concessons Preferental lendng Agrcultural debt concessons Admnstered nput prces Chapter 6. Calculatng ndcators of support to producers Market Prce Support (MPS) MPS for ndvdual commodtes Natonal (aggregate) MPS MPS for other commodtes Producer Support Estmate (PSE) Percentage PSE (%PSE) and Producer Nomnal Assstance Coeffcent (producer NAC) Indcators of producer support based on the degree of commodty specfcty Producer Sngle Commodty Transfers (producer SCT) Group Commodty Transfers (GCT) All Commodty Transfers (ACT) Other Transfers to Producers (OTP) Producer Nomnal Protecton Coeffcent (producer NPC) Producer NPC for ndvdual commodtes Producer NPC for a country Producer NPC for other commodtes Percentage Producer Sngle Commodty Transfers (%SCT) %SCT for ndvdual commodtes %SCT for a country %SCT for other commodtes Annex 6.1. Commodty groups appled n estmates for OECD countres Chapter 7. Calculatng ndcators of support to consumers Consumer Sngle Commodty Transfers (consumer SCT) for ndvdual commodtes Consumer Support Estmate (CSE) Percentage CSE (%CSE) and Consumer Nomnal Assstance Coeffcent (consumer NAC) Consumer Nomnal Protecton Coeffcent (consumer NPC) Consumer NPC for ndvdual commodtes Consumer NPC for a country Consumer NPC for other commodtes THE PSE MANUAL OECD 2010

7 Chapter 8. Calculatng ndcators of support to general servces and total support to agrculture General Servces Support Estmate (GSSE) Total Support Estmate (TSE) Percentage GSSE (%GSSE) and Percentage TSE (%TSE) Chapter 9. Calculatng ndcators of support for the OECD as a whole Converson nto a common currency Aggregaton to OECD totals Aggregaton based on PSE categores Aggregaton based on degree of commodty specfcty Chapter 10. Data and nformaton requrements for calculatng the ndcators Requrements for calculatng prce transfers Requrements for calculatng budgetary and other transfers PART III. INTERPRETING AND USING THE INDICATORS FOR POLICY ANALYSIS Chapter 11. Interpretng the ndcators Interpretng the level of support Level of producer support natonal (aggregate) level Level of producer support commodty level Level of producer support contrbuton analyss Expressng the level of support n real terms Interpretng the composton of support Why analyse the composton of support? Composton of producer support PSE categores Composton of producer support labels Composton of producer support degree of commodty specfcty Composton of support to general servces Composton of total support to agrculture Some common msunderstandngs of the ndcators Annex Comparng the OECD ndcators of support to producers wth other measures of support Chapter 12. Usng the ndcators n OECD polcy modellng Polcy Evaluaton Model (PEM) GTAPEM Modellng envronmental polces References THE PSE MANUAL OECD

8 Tables Table 2.1. The OECD ndcators of agrcultural support Table A2.1. Development of PSE categores Table 3.1. PSE categores and labels Table 3.2. Work examples of PSE categores and labels Table 4.1. Border prces and alternatve methods used to derve the MPD by country Table 4.2. Methods used for adjustng prces for qualty dfference Table 4.3 WHEAT: Calculaton of a MPD for a net mporter Table 4.4 WHEAT: calculaton of a MPD for a net exporter Table 4.5 SUGAR: Calculaton of a MPD for a net mporter Table 4.6. SUGAR: Calculaton of a MPD for a net mporter Table 4.7 BEEF: Calculaton of a MPD for a net mporter Table 4.8 BEEF: Calculaton of a MPD for a net exporter Table A4.1. MILK: Calculaton of an mplct Reference Prce and MPD Table 6.1. Indvdual commodtes for whch MPS s calculated n OECD and non-oecd countres Table 6.2. Selecton of ndvdual commodtes for MPS estmaton (example) Table 6.3. Calculaton of MPS for ndvdual commodtes (example) Table 6.4. Calculaton of EFC for lvestock commodtes (example) Table 6.5. Calculaton of natonal (aggregate) MPS (example) Table 6.6. Calculaton of MPS for Other Commodtes (example) Table 6.7. Calculaton of PSE (example) Table 6.8. Calculaton of PSE and Producer NAC (example) Table 6.9. Indcators of producer support based on the degree of commodty specfcty Table Attrbuton of PSE polces to commodtes (example) Table Calculaton of producer SCT (example) Table Calculaton of GCT (example) Table Calculaton of producer NPC for ndvdual commodtes (example) Table Calculaton of a natonal (aggregate) producer NPC (example) Table Calculaton of a producer NPC for Other Commodtes (example) Table Calculaton of %SCT for ndvdual commodtes (example) Table Calculaton of a natonal (aggregate) %SCT and a %SCT for Other Commodtes (example) Table 7.1. Calculaton of consumer SCT for ndvdual commodtes (example) Table 7.2. Calculaton of CSE (example) Table 7.3. Calculaton of %CSE and consumer NAC (example) Table 7.4. Calculaton of consumer NPC for ndvdual commodtes (example) Table 7.5. Calculaton of a natonal (aggregate) consumer NPC (example) Table 7.6. Calculaton of a consumer NPC for Other Commodtes (example) Table 8.1. Calculaton of GSSE (example) Table 8.2. Calculaton of TSE (example) Table 8.3. Calculaton of %GSSE and %TSE (example) Table Indcators of producer support (example) Table Composton of PSE (example) Table Breakdown of PSE by degree of commodty specfty (example) Table Composton of GSSE by category (example) Table Composton of TSE by recpent of transfer (example) THE PSE MANUAL OECD 2010

9 Table Composton of TSE by source of transfer (example) Table A11.1. Polcy coverage of other measures of support Table How dfferent PSE categores may be represented n PEM Fgures and Dagrams Dagram 3.1 PSE classfcaton decson tree Fgure 4.1. Prce transfers assocated wth polces that ncrease the domestc market prce.. 47 Fgure 4.2. Prce transfers assocated wth polces that decrease the domestc market prce. 48 Fgure 4.3. Schematc presentaton of value added chan Dagram 6.1. Procedure for calculatng ndcators of support to producers Dagram 7.1. The procedure for calculatng ndcators of support to consumers Dagram 8.1. The procedure for calculatng ndcators of consumer support Dagram 9.1. The procedure for calculatng the OECD total PSE Fgure Evoluton of %PSE, producer NAC and producer NPC (example) Fgure Producer %SCTs by commodty (example) Fgure Producer NPCs by commodty (example) Fgure Composton of PSE (example) Fgure PSE level and commodty specfcty (example) Fgure Relatve polcy mpacts on domestc producton Fgure Relatve polcy mpacts on farm welfare Fgure Probablty dstrbuton of mpact ratos for producton quantty Unted States170 Boxes Box 2.1. Names and defntons of the OECD ndcators of agrcultural support Box 3.1. Some ssues not explctly dealt wth n the PSE framework Box 3.2. Names and defntons of the PSE categores and sub-categores Box 3.3. Names and defntons of the PSE labels Box 3.4. Names and defntons of the GSSE categores Box 4.1. Settng a negatve prce gap to zero Box 4.2. Calculatng MPD for a commodty wth seasonal markets Box 6.1. Descrpton of a PSE Country Fle Box Use of %PSE n evaluatng annual changes n agrcultural support for the OECD area as a whole Box Comparng changes n the %PSE and producer NAC Box Showng changes n support over tme Box Why does the PSE change when world prces change? Box A11.1 Support ndcators n non-oecd agrcultural polcy studes THE PSE MANUAL OECD

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11 Acronyms and abbrevatons Acronyms and Abbrevatons AC ACT AMS CAIS CAP CIF COP CSE ERA ERP EU FAO FOB GC GCT GDP GSSE GTAP GTAPEM IMF LC LV MFN MPD MPS NAC NGO NISA NPC NRA NRP OECD OTC OT OTP PEM PSE RDR SAPIM Code used for polces ncluded n All Commodty Transfers All Commodty Transfers Aggregate Measurement of Support Canadan Agrcultural Income Stablsaton programme Common Agrcultural Polcy (of the European Unon) Cost, Insurance and Freght Cereals, Olseeds and Proten Crops Consumer Support Estmate Effectve Rate of Assstance Effectve Rate of Protecton European Unon Food and Agrcultural Organsaton of the Unted Natons Free on Board Group Commodty Group Commodty Transfers Gross Domestc Product General Servces Support Estmate Global Trade Analyss Project Global Trade Analyss Project Polcy Evaluaton Model Internatonal Monetary Fund Local Currency Prce Leves Most Favoured Naton Market Prce Dfferental Market Prce Support Nomnal Assstance Coeffcent Non-government organsaton Net Income Stablzaton Account programme (Canada) Nomnal Protecton Coeffcent Nomnal Rate of Assstance Nomnal Rate of Protecton Organsaton for Economc Co-operaton and Development Other Transfers from Consumers Code used for polces ncluded n Other Transfers to Producers Other Transfers to Producers Polcy Evaluaton Model Producer Support Estmate Rural Development Regulaton (of the European Unon) Stylsed Agr-envronmental Polcy Impact Model THE PSE MANUAL OECD

12 ACRONYMS AND ABBREVIATIONS SCT T TCT TPC TPT TRQ TSE URAA US VAT WTO Sngle Commodty Transfers Metrc Tonne Transfers to Consumers from Taxpayers Transfers to Producers from Consumers Transfers to Producers from Taxpayers Tarff-Rate-Quota Total Support Estmate Uruguay Round Agreement on Agrculture Unted States of Amerca Value Added Tax World Trade Organsaton 10 THE PSE MANUAL OECD 2010

13 Symbols Used n Formulas Symbols Used n Formulas ACT AMC BOT BP BR c CIF CO CP CSE D DP EFC EUR FG FOB GDP GFR GCT GR GSSE IF LC LV MM MMA MP MPD MPS MV NAC NPC OP OTC OTP PO PP PSE All Commodty Transfers All MPS Commodtes Budgetary and Other Transfers Border Prce Budget Revenue Sub-Scrpt Denotng Country Level Cost, Insurance and Freght Commodty Outputs Consumer Prce Consumer Support Estmate Debt Domestc Prce Excess Feed Cost Euros Farm Gate Prce Free on Board Gross Domestc Product Gross Farm Recepts Group Commodty Transfers Gross Recepts (for a commodty) General Servces Support Estmate Sub-Scrpt Denotng Indvdual Commodty Insurance and Freght Cost Local Currency Prce Leves Marketng Margn Marketng Margn Adjustment Import Prce Market Prce Dfferental Market Prce Support Monetary Value Nomnal Assstance Coeffcent Nomnal Protecton Coeffcent Other Products Other Transfers from Consumers Other Transfers to Producers Payments based on output Producer Prce Producer Support Estmate THE PSE MANUAL OECD

14 Symbols Used n Formulas PTC QA QC QP QM QX RP S SCT SMC SMP STK T1 T2 TCT TPC TPT TR TSE USD VC VM VP VX WA WP XP XR XS Prce Transfers from Consumers Qualty Adjustment Quantty of Consumpton Quantty of Producton Quantty of Imports Quantty of Exports Reference Prce Processng costs Sngle Commodty Transfers Standard MPS Commodtes Skmmed Mlk Powder Stock Change Handlng and Transportaton Costs between Wholesale Market and the Farm Gate Handlng and Transportaton Costs between Border and Domestc Market Transfers to Consumers from Taxpayers Transfers to Producers from Consumers Transfers to Producers from Taxpayers Average Ad valorem Tarff Total Support Estmate US Dollars Value of Consumpton Value of Imports Value of Producton Value of Exports Weght Adjustment Wholesale Prce Export Prce Exchange Rate Value of Export Subsdes 12 THE PSE MANUAL OECD 2010

15 Chapter 1. Introducton CHAPTER 1 INTRODUCTION 1.1. Objectves 313. The man objectves of ths manual are the followng: To provde a comprehensve descrpton of the methodology employed by the OECD to calculate ndcators of agrcultural support, by usng descrptve text, mathematcal equatons and emprcal examples. To descrbe the economc theory and prncples whch underle ths methodology. To llustrate the practcal applcaton of ths methodology, ncludng how best to deal wth data lmtatons, and to assst those wshng to replcate the method and apply t to other countres or commodtes. To explan how the ndcators can be used for polcy evaluaton and modellng Ths manual s to be used n conjuncton wth other publcly avalable documentaton, ncludng the annual report Agrcultural Polces n OECD Countres 1, the b-annual report Agrcultural Polces n Emergng Economes: Montorng and Evaluaton; and the ndcator database avalable at Target readershp 315. Ths manual wll be of assstance to those wantng to gan a greater apprecaton of the method and process used to calculate the ndcators, ncludng: Polcy makers and analysts who would lke to use the methodology for polcy evaluaton, to classfy a new polcy measure, or to evaluate the mpact of a polcy change on the ndcators. Researchers who would lke to use the economc nformaton contaned wthn the database or to calculate the ndcators for other commodtes or countres. Modellers who would lke to use the nformaton contaned n the ndcator database as an nput nto ther own models, so that they understand the character of the nformaton, and can approprately take ths nto account n desgnng ther model structures and values. 1. Alternatng each year between the ttles Agrcultural Polces n OECD Countres: Montorng and Evaluaton and Agrcultural Polces n OECD Countres: At a Glance. THE PSE MANUAL OECD

16 Chapter 1. Introducton 1.3. Structure 316. The Manual s organsed as follows. Part I provdes an ntroducton to the basc concepts, as covered n Chapter 1. Chapter 2 ntroduces the man purpose and prncples behnd the calculatons of the ndcators, wth a short hstory n Annex 2.1. Chapter 3 explans the crtera used to dentfy polces ncluded n the calculaton of the ndcators, how to dstngush polcy transfers accordng to recpent, and, fnally, how to classfy polces Part II detals the methodology for calculatng the ndcators. Chapter 4 explans the method used to calculate transfers derved from polces that affect the market prce receved by producers of agrcultural commodtes. Chapter 5 focuses on other transfers, ncludng budgetary payments to producers and support based on revenue foregone, e.g. tax or credt concessons. Chapters 6 and 7 show how to brng these transfers together to calculate the ndcators of support to producers and consumers respectvely. Chapter 8 detals the calculaton of ndcators that measure support through general servces to agrculture and the total support to agrculture. Chapter 9 explans the aggregaton of support ndcators across countres to obtan mult-country totals, e.g. at the OECD level. Chapter 10 concludes Part II by outlnng the data and nformaton requrements for calculatng the ndcators of support Part III shows how the ndcators are used to analyse polcy developments and n economc modellng. Chapter 11 explans how the ndcators are used to nterpret polcy developments and what they can and cannot reveal, ncludng approprate wordng and presentaton (tables and graphs). These suggestons are nether absolute nor exhaustve, but are the result of many years of analyss, presentaton and dscusson of fndngs. Fnally, Chapter 12 outlnes how the ndcator database s used n agrcultural polcy modellng at the OECD. 14 THE PSE MANUAL OECD 2010

17 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support CHAPTER 2. OVERVIEW OF THE OECD INDICATORS OF AGRICULTURAL SUPPORT 7. Ths chapter begns wth a bref summary of why the OECD ndcators of agrcultural support ( the ndcators ) have been developed. The second secton defnes the ndcators, and the fnal secton outlnes the underlyng prncples on whch the ndcators are establshed. Annex 2.1 revews the hstorcal development of the ndcators Why measure agrcultural support? The OECD ndcators were developed n order to montor and evaluate developments n agrcultural polcy, to establsh a common base for polcy dalogue among countres, and to provde economc data to assess the effectveness and effcency of polces. The ndcators were mandated by OECD Mnsters n 1987, and have snce been calculated for OECD and an ncreasng number of non-oecd countres, and are wdely referred to n the publc doman. 8. The objectves and prortes of agrcultural polces n OECD countres encompassed over tme a wde range of ssues from overcomng food shortages or surpluses n the post-war perod to securng food safety, envronmental qualty and preservaton of rural lvelhoods at present. Polcy nstruments have been equally vared, reflectng changes n domestc poltcal and economc settngs and, progressvely, developments n the nternatonal economc arena. Despte ths dversty, polcy measures appled n a country wthn a certan perod of tme can be brought together and expressed n one or several smple numbers called support ndcators whch are comparable across tme and between countres. The utlty of dong ths s three-fold. 9. Frst, support ndcators can be used to montor and evaluate developments of agrcultural polces. 2 Ths ncludes the extent of polcy reform acheved by countres, both over tme and through specfc reform efforts (e.g. the US Farm Blls and varous CAP reforms), as well as progress towards achevng the commtment agreed to at the 1982 OECD Mnsteral Councl of reformng agrcultural polces. Ths commtment stated that agrcultural trade should be more fully ntegrated wthn the open and multlateral tradng system, and t called for OECD countres to pursue a gradual reducton n protecton and a lberalsaton of trade, n whch a balance should be mantaned as between countres and commodtes. Mnsters also requested the OECD to develop a method to measure the level of protecton n order to montor and evaluate progress. 2. As n the annual OECD Montorng and Evaluaton reports on agrcultural polces, the term polcy evaluaton s understood n ths manual to be the analyss of levels and composton of agrcultural support wth respect to the mplementaton of the polcy reform agenda. Ths term s not used n ths manual as the evaluaton of the effectveness or effcency of polces, except n cases where the focus s specfcally on that ssue (e.g. n Chapter 12). THE PSE MANUAL OECD

18 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support 10. Closely related to ths, the ndcators establsh a common base for polcy dalogue by usng a consstent and comparable method to evaluate the nature and ncdence of agrcultural polces. Whle the ndcators were calculated ntally for OECD countres, the analyss has gradually ncluded also non-oecd countres, such as Brazl, Chle, Chna, Russa, South Afrca and Ukrane. It currently ncludes 43 countres (27 EU members treated as a sngle entty), wth estmates coverng the perod from 1986 to the present. The nternatonal comparablty of the ndcators and wde country coverage makes the ndcators a useful tool for polcy dalogue not only amongst OECD countres, but also wth non-oecd countres, nter-governmental organsatons (WTO, World Bank, IMF and FAO), farmng and non-government organsatons, as well as research nsttutons. 11. Fnally, the ndcator database s used n further research on polcy mpacts. The data serve as an nput nto modellng to assess the effectveness and effcency of polces n delverng the outcomes for whch they were desgned and to understand ther effects on producton, trade, ncome, the envronment, etc. Whle the ndcators cannot by themselves quantfy these mpacts, the economc nformaton upon whch they are based s an mportant buldng block for further analyss Overvew of support ndcators: key terms, defntons and dstnctons Support s understood as gross transfers to agrculture from consumers and taxpayers, arsng from governments polces that support agrculture. In addton to budgetary expendtures, support ncludes other estmated transfers, whch do not requre actual monetary dsbursements (e.g. credt concessons) The ndcators reflect the provson of support, or the level of effort made by governments, as mpled by ther agrcultural polces. As such, they are not ntended to and do not measure polcy mpacts on producton, farm ncomes, consumpton, trade or envronment. The ndcators represent dfferent ways to analyse agrcultural polcy transfers and measure ther levels n relaton to varous key economc varables. Together they provde a comprehensve pcture of agrcultural support. The ndcators can be dstngushed accordng to the recpent of the transfer, the unt of measurement n whch they are expressed, and the type of aggregaton. 12. Agrcultural polces may provde drect payments to farmers. They may mantan domestc agrcultural prces above those at the country s border, or grant tax and credt concessons to farmers. Support s not only comprsed of budgetary payments that appear n government accounts, but also ncludes support of market prces, as well as other concessons that do not necessarly mply actual budgetary expendture, such as tax concessons. The common element to all these polces s that they generate transfers to agrculture. 13. The concept of transfer presumes both a source of the transfer and the exstence of a recpent. In the present methodology, agrculture s generally regarded as a supported sector and the man recpent of polcy transfers. Consumers of agrcultural commodtes and taxpayers represent the two sources of transfers,.e. the economc groups bearng the cost of agrcultural support. The term agrculture desgnates prmary agrcultural producers as an economc group. Agrcultural producers are vewed from two perspectves as ndvdual entrepreneurs, and collectvely. These dstnctons underle the key dmensons n whch agrcultural support s measured and the basc structure of the ndcators. 16 THE PSE MANUAL OECD 2010

19 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support 14. The terms support and polcy transfers are broadly synonymous, but may be used n dfferent contexts. The term support s predomnantly used to mean a polcy measure (that generates a polcy transfer) and usually appears when dentfyng, scopng and classfyng the relevant polces. The term polcy transfer s used manly wth respect to calculatons,.e. the process of obtanng numercal expressons of polces. 15. More fundamental for understandng of the ndcators, however, s the dstncton between the notons of provson of support and the mpact of support (.e. mpacts of polcy transfers). The ndcators are the varous measures of gross polcy transfers. As such, they reflect the provson of support, or the level of effort made by governments, as mpled by ther agrcultural polces. The ndcators do not account for the losses of that effort wthn the economc system, as experenced by the recpents of support. In fact, a proporton of the transfers wll not end up as extra producer net ncome because support nduces hgher prces for agrcultural nputs and factors, as well as generatng deadweght loss of economc welfare. Moreover, the actual mpact of polces on ts recpents wll depend on, among other thngs, the bass upon whch support s provded (e.g. whether t s provded per tonne of output, per land unt, per farm, etc.), the level of support, and the responsveness of farmers to changes n support. The ndcators, therefore, are not ntended to and do not measure the mpact of polcy effort on farm producton, farm ncomes, trade or envronment. Ths explanaton of the ndcators as representng measures of polcy effort s crucal for understandng them properly. Chapter 11 contans a detaled dscusson of how the ndcators should be used and nterpreted, and concludes wth examples of mstakes n nterpretaton that should be avoded. 16. The support ndcators, whch are ntroduced below, are dfferent ways to analyse agrcultural polcy transfers and measure ther levels n relaton to varous key economc varables. The names, abbrevatons and defntons of the ndcators are lsted n Box 2.1. No sngle ndcator can capture all aspects of agrcultural support. Each serves a purpose, hghlghtng a dmenson of the support framework. The ndcators are nterlnked and mutually renforcng. When analysed together, they provde a comprehensve pcture of the level and composton of support. Box 2.1. Names and defntons of the OECD ndcators of agrcultural support INDICATORS OF SUPPORT TO PRODUCERS Producer Support Estmate (PSE): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm-gate level, arsng from polcy measures that support agrculture, regardless of ther nature, objectves or mpacts on farm producton or ncome. Percentage PSE (%PSE): PSE as a share of gross farm recepts (ncludng support). Producer Nomnal Assstance Coeffcent (producer NAC): the rato between the value of gross farm recepts (ncludng support) and gross farm recepts valued at border prces (measured at farm gate). Producer Nomnal Protecton Coeffcent (producer NPC): the rato between the average prce receved by producers at farm gate (ncludng payments per tonne of current output), and the border prce (measured at farm gate). Producer Sngle Commodty Transfers (producer SCT): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polcy measures drectly lnked to the producton of a sngle commodty such that the producer must produce the desgnated commodty n order to receve the transfer. Producer Percentage Sngle Commodty Transfers (producer %SCT): the commodty SCT as a share of gross farm recepts for the specfc commodty. Group Commodty Transfers (GCT): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polcy measures whose payments are made on the bass that one or more of a desgnated lst of commodtes s produced,.e. a producer may produce from a set of allowable commodtes and receve a transfer that does not vary wth respect to ths decson. THE PSE MANUAL OECD

20 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support (contnued) All Commodty Transfers (ACT): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polcy measures that place no restrctons on the commodty produced but requre the recpent to produce some commodty of ther choce. Other Transfers to Producers (OTP): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polcy measures that do not requre any commodty producton at all. INDICATORS OF SUPPORT TO GENERAL SERVICES FOR AGRICULTURE General Servces Support Estmate (GSSE): the annual monetary value of gross transfers to general servces provded to agrcultural producers collectvely (such as research, development, tranng, nspecton, marketng and promoton), arsng from polcy measures that support agrculture regardless of ther nature, objectves and mpacts on farm producton, ncome, or consumpton. The GSSE does not nclude any transfers to ndvdual producers. Percentage GSSE (%GSSE): GSSE as a share of Total Support Estmate (TSE). INDICATORS OF SUPPORT TO CONSUMERS Consumer Support Estmate (CSE): the annual monetary value of gross transfers from (to) consumers of agrcultural commodtes, measured at the farm gate level, arsng from polcy measures that support agrculture, regardless of ther nature, objectves or mpacts on consumpton of farm products. Percentage CSE (%CSE): CSE as a share of consumpton expendture (measured at farm gate) net of taxpayer transfers to consumers. Consumer Nomnal Assstance Coeffcent (consumer NAC): the rato between the value of consumpton expendture on agrcultural commodtes (at farm gate) and that valued at border prces (measured at farm gate). Consumer Nomnal Protecton Coeffcent (consumer NPC): the rato between the average prce pad by consumers (at farm gate) and the border prce (measured at farm gate). Consumer Sngle Commodty Transfers (consumer SCT): the annual monetary value of gross transfers from (to) consumers of agrcultural commodtes, measured at the farm gate level, arsng from polcy measures drectly lnked to the producton of a sngle commodty. INDICATORS OF TOTAL SUPPORT TO AGRICULTURE Total Support Estmate (TSE): the annual monetary value of all gross transfers from taxpayers and consumers arsng from polcy measures that support agrculture, net of assocated budgetary recepts, regardless of ther objectves and mpacts on farm producton and ncome, or consumpton of farm products. Percentage TSE (%TSE): TSE as a share of GDP 17. Three dstnctons can be made between the ndcators (Table 2.1). The frst one relates to the ntended recpent of the transfer producers ndvdually, producers collectvely, or consumers, although agrculture s always understood to be the economc sector supported by the polces (Secton 3.1). For example, nne ndcators measure support drected to producers ndvdually, whle two ndcators measure support provded to producers collectvely. 18. A second dstncton can be made n relaton to the unt of measurement: nne ndcators are expressed n monetary terms, and nne represent percentages or ratos. An advantage of monetary ndcators s that they can be used to analyse the composton of support, e.g. to calculate the shares of PSE or GSSE by polcy category, or the shares of TSE accordng to whether the transfers come from consumers or taxpayers. However, the monetary ndcators are nfluenced by the sze and structure of the country s agrcultural sector, as well as the country s rate of nflaton. Consequently, there are dffcultes n usng them to compare support levels between countres, to evaluate changes over tme, or to assess the level of support provded wthn a country to dfferent commodtes. In contrast, percentage ndcators and ratos, whch relate polcy transfers to some other monetary base, e.g. the value of agrcultural producton, allow such comparsons to be made. 18 THE PSE MANUAL OECD 2010

21 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support 19. Fnally, the ndcators can be dstngushed accordng to the type of aggregaton at whch they can be derved across commodtes or geographcally. Whle all the ndcators can be calculated at the natonal and mult-country level, some can also be calculated for ndvdual commodtes or for groups of commodtes. Table 2.1. The OECD ndcators of agrcultural support Unt of measurement Type of aggregaton Intended recpent Monetary Percentage or rato Indvdual commodty or groups of commodtes Natonal 1 (aggregate) Geographcal Mult-country (e.g. OECD total) Producers ndvdually PSE %PSE and producer NAC nc * * - producer NPC * * * producer SCT producer %SCT * * * GCT nc * * * ACT and OTP nc nc * * Producers collectvely Consumers GSSE %GSSE nc * * CSE %CSE and consumer NAC nc * * - consumer NPC * * * consumer SCT nc * * * All recpents TSE %TSE nc * * Symbols: - not applcable; nc not calculated; * calculated. 1. The European Unon (EU) s treated as one country for the purpose of ndcator calculatons, gven the common polcy for agrculture appled throughout the Unon, and specfcally: the EU12 for ncludng ex- GDR from 1990; EU15 for ; and EU25 for and EU27 from 2007 onwards Basc prncples of measurng support Several key prncples determne the scope of polcy measures to be consdered n the estmaton of agrcultural support and the method for measurng support, such as: - A polcy measure s ncluded f t generates transfers to agrcultural producers, regardless of the nature, objectves or mpacts of the polcy measure - Transfers are measured n gross terms, takng no account of adjustments whch producers may make to receve the support, e.g. to meet complance condtons - Transfers to ndvdual producers are measured at the farm gate level. 20. A number of prncples, or general rules, gude the measurement of agrcultural support. Prncples 1 to 3 determne the scope of polcy measures to be consdered n estmatng agrcultural support and provde crtera for dentfyng agrcultural polces n a complex mx of government actons. Prncples 4 and 6 help to defne the method for measurng support and are mportant for nterpretng the ndcators. THE PSE MANUAL OECD

22 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support 21. Prncple 1: generaton of transfers to agrcultural producers as a key crteron for ncluson of polcy n the measurement of support. Polcy measures generate explct or mplct transfers to supported ndvduals or groups. A polcy measure s consdered for measurement f agrcultural producers, ndvdually or collectvely, are the only, or the prncpal, ntended recpents of economc transfers generated by t. Ths s suffcent crteron for ncluson of a polcy measure n the estmaton of agrcultural support. 22. Prncple 2: there s no consderaton of the nature, objectves or economc mpacts of a polcy measure beyond an accountng for transfers. Ths prncple complements prncple 1, n that the stated objectves, or perceved economc mpacts of a polcy measure, are not used as alternatve or addtonal crtera to determne the ncluson or excluson of a polcy measure n the estmaton of agrcultural support. 23. Prncple 3: general polcy measures avalable throughout the entre economy are not consdered n the estmaton of agrcultural support, even f such measures create polcy transfers to/from the agrculture. Thus, a stuaton of zero support to agrculture would occur when there are only general economy-wde polces n place wth no polces specfcally alterng the economc condtons for agrculture. 24. Prncple 4: transfers generated by agrcultural polces are measured n gross terms. Polcy transfers can be defned n gross or net terms,.e. as revenue (gross recepts) or ncome (revenue less costs) generated by a polcy measure. The phrase gross transfers n the defntons emphasses that no adjustment s made n the ndcators for costs ncurred by producers n order to receve the support, e.g. costs to meet complance condtons attached to certan payments, or tax clawbacks. 25. Prncple 5: polcy transfers to ndvdual producers are measured at the farm gate level, whch follows from the objectve to measure support only to prmary producers of agrcultural commodtes. Consequently, the word consumer n the defntons and methodology s understood as a frst-stage buyer of agrcultural commodtes. 26. Prncple 6: polcy measures supportng ndvdual producers are classfed accordng to mplementaton crtera, such as: () the bass upon whch support s provded (a unt of output, an anmal head, a land unt, etc.); () whether support s based on current or non-current producton parameters; and () whether producton s requred to receve support or not; and other crtera. These polcy characterstcs affect producer behavour, and dstngushng polces accordng to mplementaton crtera enables further analyss of polcy mpacts on, for example, producton, trade, ncome, and the envronment. 27. These are the general prncples appled n estmatng the ndcators of support. Along wth the more practcal underpnnngs of the methodology, they wll be developed further n the followng chapters. 20 THE PSE MANUAL OECD 2010

23 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support Annex 2.1. A Short Hstory of the Indcators 28. The wdespread polcy goal from the late 1940s to produce more food led to ncreasng concern about the effects of agrcultural polces on trade relatons and on the cost of polces. Combned wth rapd techncal progress and structural changes, trade barrers and domestc producton support measures led to surpluses of farm goods, whch were stocked or exported wth addtonal subsdes. World prces for temperate-zone commodtes were drven down. The costs of stock-holdng and export subsdes placed heavy burdens on government budgets, consumers n countres wth protected markets faced hgher food blls, and compettve producers n other countres were penalsed by restrctons on access to those markets. By the begnnng of the 1980s, a number of OECD countres realsed that acton was urgently needed. 29. At the 1982 OECD Mnsteral Councl (consstng of Mnsters of Economcs, Trade and Foregn Affars, plus a few Agrculture Mnsters), t was agreed that agrcultural trade should be more fully ntegrated wthn the open and multlateral tradng system (and) that the desrable adjustments n domestc polces can best take place f such moves are planned and co-ordnated wthn a concerted multlateral approach amed at achevng a gradual reducton n protecton and a lberalsaton of trade, n whch a balance should be mantaned as between countres and commodtes. Mnsters also decded that the Secretarat should study the varous possble ways n whch the above ams could be acheved as a contrbuton to progress n strengthenng co-operaton on agrcultural trade ssues and as a contrbuton to the development of practcal multlateral and other solutons. 30. An ntegral part of ths nvestgaton was to develop an approprate bass for measurng agrcultural subsdes. After consderng the optons avalable, the Secretarat decded to use the Producer Subsdy Equvalent (PSE), ntally defned as the payment that would be requred to compensate farmers for the loss of ncome resultng from the removal of a gven polcy measure (OECD, 1987). 3 Whle the PSE was at frst used for modellng the effects on world commodty prces of a small reducton n agrcultural subsdes, t was also recognsed as a very useful tool n ts own rght to establsh a consstent and comparatve method to evaluate agrcultural polces between countres. 31. The noton of a subsdy equvalent derves from the economc theory of protecton developed n the 1960s to evaluate the effects of tarffs (Corden, 1971). Accordng to ths theory, the producer subsdy equvalent of a polcy measure, whether an mport tarff, export subsdy, payment per tonne or per hectare, etc., s the payment per unt of output that a government would have to pay producers to generate the same mpact on producton as that polcy measure. 4 In the early 1970s, Tm Joslng had appled ths concept to the emprcal measurement of agrcultural subsdes n work for the FAO, ntroducng the term PSE (Joslng, 1973 and Joslng, 1975). 3. The Consumer Subsdy Equvalent (CSE) was defned as the mplct tax on consumpton resultng from a gven polcy measure (market prce support element of the PSE) and any subsdes on consumpton. 4. Lkewse, the consumer tax equvalent of a polcy measure s the per unt tax that a government would have to mpose to generate the same mpact on consumpton as that polcy measure. THE PSE MANUAL OECD

24 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support 32. In 1987, a major OECD study enttled Natonal Polces and Agrcultural Trade offered an n-depth analyss of the agrcultural polces of ndvdual OECD countres based largely on the PSE and related ndcators. 5 Ths study recognsed the lnkages between domestc and trade polces and concluded that n order to mprove the tradng envronment actons were necessary on both trade barrers and domestc polces. 33. It was clear from the start that the ncome compensaton defnton dd not match what was actually beng measured by the OECD PSE. Whle polcy measures provdng the same amount of monetary transfers to producers have the same revenue subsdy equvalent, they may have dfferent producton and ncome subsdy equvalents whch depend on the way the measures are mplemented (per unt of output or per hectare of land producng the same output, for example). One of the frst crtques n ths regard noted, nter ala, that the PSE was a measurement of revenue transfer (Peters, 1988). 34. As a result, the PSE was redefned n 1990 as the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm-gate level, arsng from polcy measures that support agrculture, regardless of ther nature, objectves or mpact on farm producton or ncome Four major refnements were made n 1999: The PSE acronym was changed from meanng Producer Subsdy Equvalent to Producer Support Estmate. 7 It was recognsed that: (a) transfers assocated wth a wde range of dverse polces have dfferent subsdy equvalents ; and (b) that some of the transfers were gven for the provson of servces and postve externaltes rather than to subsdse the producton of agrcultural commodtes. The more neutral term support acknowledges that a monetary transfer s nvolved whatever the polcy objectve. Changes were made to the classfcaton of polces wthn the PSE (Table A2.1). Ths was requred because of the growng scope of support polces ntroduced snce the md-1980s. Prevously, there were fve PSE categores wth polces classfed accordng to the type of support measure. The 1999 refnements ntroduced seven types of support measures wth polces classfed accordng to how they were mplemented. A closely related change nvolved the establshment of a separate ndcator to measure support provded to producers collectvely, the General Servces Support Estmate (GSSE). Support for General Servces had been prevously ncluded n the PSE. Ths was separated from the calculaton of the PSE, whch now measures only support receved by producers ndvdually. 5. PSEs and CSEs were ntally calculated for a set of OECD countres comprsng Australa, Austra, Canada, the EEC, Japan, New Zealand and the Unted States for the perod 1979 to 1981, and later extended to nclude Sweden, Fnland, Norway and Swtzerland. 6. The CSE was also redefned as the annual monetary value of gross transfers from (to) consumers of agrcultural commodtes, measured at the farm gate level, arsng from polces that support agrculture, regardless of ther nature, objectves or mpacts on consumpton of farm products. If negatve, the CSE measures the burden (mplct tax) on consumers, ndcatng that hgher prces resultng from market prce support more than offset consumer subsdes. 7. The CSE was changed from the Consumer Subsdy Equvalent to the Consumer Support Estmate. 22 THE PSE MANUAL OECD 2010

25 Chapter 2. Overvew of the OECD Indcators of Agrcultural Support Consequently, the ndcator and method for measurng the total cost to consumers and taxpayers of agrcultural polces also changed, from the Total Transfers to Total Support Estmate (TSE). Fnally, a new method for calculatng the natonal (aggregate) PSE was ntroduced. Prevously, ths had been calculated by extrapolatng the average %PSE for a common set of commodtes to all agrcultural producton. A new method was ntroduced whereby only the average rato of MPS to gross farm recepts for a set of commodtes s extrapolated across to the rest of agrcultural producton (secton 6.1.1), wth all transfers from non-mps polces ncluded specfcally wthn the PSE through classfcaton n the approprate categores. 36. Further changes were ntroduced n 2007 to enable the ndcators to better capture recent polcy developments, e.g. the move to decouple the provson of support from specfc commodty producton and re-couple the provson of support to other crtera. Three major changes were made: Although stll based on mplementaton crtera, the PSE categores were substantally redefned (Table A2.1 and secton 3.3.1). Labels were ntroduced, wth the result that each polcy, n addton to beng classfed nto a PSE category, could also have up to sx dfferent labels attached to t so as to provde addtonal detal on mplementaton crtera; labels serve as shorthand for categores not ncluded n the man presentaton. For example, labels gve addtonal nformaton on whether a payment s wth or wthout lmt, or whether a payment mples any constrants on nput use by the recpent, etc. (secton 3.3.3). PSEs for ndvdual commodtes are no longer calculated. Instead, a country total PSE s dvded nto Sngle Commodty Transfers, Group Commodty Transfers, All Commodty Transfers; and Other Transfers to Producers (secton 6.3). Ths change reflects the fact that as a result of polcy reform, support n many OECD countres s less ted to an ndvdual commodty. Support s beng ncreasngly provded to groups of commodtes or all commodtes n general, or wthout oblgng a recpent to engage n commodty producton at all. In ths stuaton the lnk between some support transfers and ndvdual commodtes becomes less apparent. Ths necesstated an alternatve presentaton of support transfers wth respect to ther commodty specfcty. Table A2.1. Development of PSE categores Intal 1987 categores 1999 revson 2007 revson A. Market Prce Support B. Drect payments C. Reducton n nput costs D. General Servces E. Other A. Market Prce Support B. Payments based on output C. Payments based on area planted/anmal numbers D. Payments based on hstorcal enttlements E. Payments based on nput use F. Payments based on nput constrants G. Mscellaneous A. Support based on commodty output (Market Prce Support and Payments based on output) B. Payments based on nput use C. Payments based on current A/An/R/I1, producton requred D. Payments based on non-current A/AN/R/I, producton requred E. Payments based on non-current A/AN/R/I, producton not requred F. Payments based on non-commodty crtera G. Mscellaneous 1. The letters stand for Area (A), Anmal Numbers (AN), Recepts (R) or Income (I). THE PSE MANUAL OECD

26 Chapter 3. Identfyng, Dstngushng and Classfyng Polces CHAPTER 3. IDENTIFYING, DISTINGUISHING AND CLASSIFYING POLICIES 37. Before calculatng the ndcators for any partcular country, t s mportant to understand fully the range of polcy measures appled to support agrculture and the forms n whch they are mplemented. 38. The frst secton of Chapter 3 defnes the polcy measures ncluded n the measurement of support. The followng secton dfferentates the polces accordng to whch of the three economc groups the transfer s made to. The thrd secton detals the varous categores and labels attached to polcy measures wthn the PSE, ncludng defntons and worked examples. Smlarly, the varous GSSE and CSE categores are defned and dscussed n the two fnal sectons Identfyng polces that support agrculture Polces are ncluded n the estmates of support f agrculture s the only, or the major, benefcary of the polcy. It does not matter whch government mnstry or level of government mplements the polcy. 39. The range of polcy measures ncluded n the estmaton of agrcultural support are determned by the defntons and prncples outlned n Chapter 2. In all cases, whch government body s responsble for the polcy measure gvng rse to the transfer has no mpact on the decson to nclude t or not. In other words, polcy measures supportng agrculture may be under the responsblty of many dfferent government mnstres, and not just the mnstry formally responsble for agrculture, and at dfferent levels of government, e.g. central, provncal, prefectural or state. Alternatvely, polces mplemented by a mnstry responsble for agrculture but related to nonagrcultural actvtes, e.g. forestry or fsheres, are not consdered. 40. From the defnton of the PSE, a polcy measure wll be ncluded n the estmaton of agrcultural support f t: (a) provdes a transfer whose ncdence s at the farm level; and (b) s drected specfcally to agrcultural producers or treats agrcultural producers dfferently from other economc agents n the economy. The support provded by the polcy measure may be delvered n several dfferent ways: an ncreased output prce (Market Prce Support); a reduced nput prce (e.g. a fertlser subsdy) or cost share for fxed captal; a drect payment (a cheque from the government); a revenue foregone by government (e.g. a tax concesson); a rembursement of a tax or charge (e.g. as for fuel taxes n some countres); or a gratutous servce n knd to ndvdual farmers (e.g. delvery of extenson servces). 41. Support for farm product prces, or drect payments based on agrcultural producton or agrcultural area, are clearly agrcultural and producer-specfc, and are ncluded n the PSE ndcator. Smlarly, a payment reducng the prce of fertlser or pestcde for applcaton on farm land, or a payment compensatng for yeld loss as a result of practsng organc farmng, s clearly agrcultural and producer specfc and are also ncluded n the PSE. On the other hand, a tax concesson that s avalable to all small busnesses or to all self-employed people n an economy would not be ncluded 24 THE PSE MANUAL OECD 2010

27 Chapter 3. Identfyng, Dstngushng and Classfyng Polces n the PSE because t s not specfc to agrculture, even though t benefts farmers, perhaps substantally. 42. Wth respect to some measures, a degree of judgement needs to be exercsed. Ths s llustrated n the followng examples. A fertlser subsdy may beneft gardeners and owners of golf courses, but the man benefcary wll usually be farmers. In ths case, the polcy measure s judged to be specfc to farmng and s ncluded n the PSE. However, n the estmaton of support, only the value of transfers gong to agrculture s ncluded. Many countres grant concessons on the use of fuel n machnes for off-road use. All machnery-usng sectors may beneft, or a lmted number of sectors may be defned by the enablng regulatons. In these cases, the beneft wll be ncluded n the PSE f agrculture s sngled out as a target sector for the beneft or f, de facto, t s the major benefcary of the measure. A grant for the converson of farm buldngs to self-caterng accommodaton for toursts wll not be ncluded unless elgblty for the grant s confned to farmers. Dfferental treatment of farmers n socal securty measures s not ncluded because t has not been possble to determne whether the conferred benefts are specfc to prmary agrculture. Measures that provde support to ndvduals who may not be farmers to carry out actons on farms, e.g. a stone wall payment/envronmental measure that s also avalable to non-farmers, may be ncluded, although only the value of transfers gong to farmers would be ncluded. 43. The defnton of the GSSE allows for a wder range of polcy measures to be ncluded n the ndcator. As wth the PSE, the focus s on the prmary sector agrcultural producton at the level of the farm. Two prncpal types of expendtures are ncluded as follows: Expendtures assocated wth polcy measures that are ncluded n the PSE, but whch are not receved drectly by farmers. For example, the costs assocated wth the storage and dsposal of prce-supported commodtes by the government or an apponted agency are ncluded n the GSSE. Servces that beneft prmary agrculture but whose ntal ncdence s not at the level of ndvdual farmers: for example, agrcultural educaton, research, marketng and promoton of agrcultural goods, general nfrastructural nvestment relatng to dranage, and rrgaton, and nspecton servces beyond the farm gate. 44. From the defnton of the CSE, polcy measures whch provde postve transfers to frst consumers of agrcultural commodtes, e.g. flour mlls, meat-processng plants or frut-packng houses, are also ncluded when they are provded specfcally to offset the hgher prces that result from market prce support. Domestc food ad assocated wth measures that support agrculture, e.g. dstrbuton of government stocks acqured n the context of market nterventons, are also ncluded. 45. A contnual effort s made to ensure consstency n the treatment and completeness of polcy coverage. Revsng the calculatons and mprovng consstency n lght of more updated data and nformaton on polcy measures s an ongong process undertaken n conjuncton wth the preparaton of the reports on Agrcultural Polces n OECD Countres: Montorng and Evaluaton and Agrcultural Polces n Non-OECD Countres: Montorng and Evaluaton. THE PSE MANUAL OECD

28 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Regulatory measures Box 3.1. Some ssues not explctly dealt wth n the PSE framework In lght of the standard dvson of government measures nto fscal and regulatory, a queston arses about the treatment of regulatons n the PSE. Generally speakng, the PSE ncludes polcy measures that gve rse to transfers. The transfers may be drect (a cheque from the government) or ndrect (pad by consumers), explct (agan a cheque) or mplct (as n a tax concesson). In all these cases, a recpent and a benefcary can be clearly dentfed. The PSE does not capture regulatons except n so far as these occur n assocaton wth transfers. For example, a producton quota s captured n the estmaton of Market Prce Support. However santary or envronmental regulatons as such wll not be reflected n the PSE unless there are transfers assocated wth them, e.g. f governments compensate some of the costs to comply wth these regulatons. Externaltes and publc goods generated by agrculture Agrcultural actvtes not only produce commodtes for food, feed, fbre or fuel, but also contrbute to the preservaton of ecosystems, cultural landscapes, carbon sequestraton and flood management. Agrculture also generates polluton of water and ar, contrbutes to greenhouse gas emssons, and leads to loss of habtats and bodversty. Some farmers voluntarly treat anmals (anmal welfare) or provde levels of food safety that go beyond mnmum legal standards. In some countres legal requrements that farmers must observe (such as bannng the keepng of chcken n cages) go beyond what farmers would proftably choose to mplement wthout support payments. Agrculture thus provdes publc goods and generates postve or negatve externaltes, whch may be provded jontly wth agrcultural commodty producton, or drectly through the use of farm-based resources. In so far as markets are absent or poorly functonng for these externaltes and publc goods, farmers are nether remunerated for ther provson, nor charged for the polluton generated. In such cases, wthout some remuneraton or penalty, there would tend to be an under-provson of publc goods and an over-generaton of envronmental damage. Thus governments have put n place varous agr-envronmental and anmal welfare polces, whch nvolve nter ala payments and charges to farmers. Consstent wth the OECD defnton of the PSE, the value of these (postve and negatve) externaltes s not explctly captured n gross farm recepts. It wll be recalled that gross farm recepts s the denomnator of the %PSE that comprses the value of commodty producton to whch s added budgetary transfers from polces, some of whch are to pay farmers to reduce negatve externaltes. Takng nto account the value of these nonmarket publc goods and externaltes would mean that the denomnator would represent farm recepts adjusted for externaltes and publc goods. Transfers from polces that pay farmers for the extra costs ncurred or profts foregone (from reduced commodty producton) for nvestments or practces - such as for conservng land wth hgh envronmental value, preservng bodversty, mprovng the treatment of anmals, or reducng polluton - are ncluded n both the numerator and denomnator n the %PSE calculaton. As the denomnator of the %PSE ncludes the value of the transfers assocated wth such polces, the transfers could be consdered as a proxy for the value of the relevant publc goods and externaltes, as measured by the addtonal costs of ther provson. It could be argued that the total socal value of non-market goods generated by agrculture, both postve and negatve, should be ncluded n the denomnator (.e. gross farm recepts adjusted for those goods). Three ponts need to be stressed n ths regard: frst, n so far as those non-market goods are provded jontly wth marketed commodtes (whch s also partly dependent on the overall level of support from all sources), there s no addtonal cost ncurred by farmers n ther provson, whle addtonal non-market goods wll generally only be provded f there s addtonal remuneraton (as outlned above); second, at present there s no consstent and non-contested set of demand valuatons by socety for non-market publc goods (or of the value of negatve externaltes) across and wthn OECD countres whch could be accounted for n the value of farm recepts; and thrd, some of the transfers n the General Servces Support Estmate (GSSE) are for the provson of publc goods or mtgaton of negatve externaltes, but are not ncluded (by defnton) n the value of gross farm recepts n the %PSE calculaton. Those elements n the GSSE would need to be taken nto account n any overall accountng of the externaltes assocated wth agrculture. Other work n the OECD s currently examnng the valuaton of envronmental externaltes (n the Envronment Drectorate), and the measurement (and classfcaton) of transfers assocated wth agrenvronmental polces, and ndcators of envronmental performance n the agrcultural sector (n the Trade and Agrculture Drectorate). The Envronmental Performance of Agrculture n OECD Countres Snce 1990 (OECD, 2008a) and the Internet-based Inventory of Polces Addressng Envronmental Issues n Agrculture ( are useful sources of nformaton. 26 THE PSE MANUAL OECD 2010

29 Chapter 3. Identfyng, Dstngushng and Classfyng Polces 3.2. Dstngushng between polces accordng to economc group Polcy measures are attrbuted to three economc groups on the bass of who s the ntendant recpent of the transfer,.e. producers ndvdually, producers collectvely, or consumers of agrcultural commodtes. A seres of questons helps to determne to whch recpent group a polcy transfer should be classfed. 46. Identfyng the full range of polces supportng agrculture s also largely a process of dstngushng between polcy measures on the bass of whch economc group receves the transfer. Three economc groups are dentfed, accordng to whether the polcy measure provdes transfers to producers ndvdually (PSE) or collectvely as general servces to agrculture (GSSE), or whether t provdes transfers to consumers ndvdually (CSE). Approprately dstngushng between polces s mportant for correctly calculatng the ndcators that measure the level and composton of support. Ths process can be aded by the followng sequence of questons. Queston 1: Does the polcy create a transfer to producers collectvely through general servces? 47. For the answer to be postve, such transfers should not depend on the actons of ndvdual farmers or consumers, are not receved by ndvdual producers or consumers, and do not affect drectly farm recepts or consumpton expendture. In answerng ths queston, t would be useful to bear n mnd the categores for classfyng polces wthn the GSSE (secton 3.4). If the answer s yes, consder the polcy under the GSSE. If no, proceed to the next queston. Queston 2: Does the polcy measure create a transfer to producers ndvdually based on goods or servces produced, on nputs used, or on the fact of beng a farmng enterprse or farmer? 48. For a polcy measure to be ncluded n the PSE, t s necessary that an ndvdual farmer takes actons to produce goods or servces, to use factors of producton, or to be defned as an elgble farmng enterprse or farmer, n order to receve the transfer. If yes, consder t under the PSE and proceed to the followng queston. If no, also proceed to the followng queston. Queston 3: Does the polcy create a transfer to or from consumers of agrcultural commodtes? 49. In the case of the CSE, t s necessary for ndvdual consumers to take actons to consume agrcultural commodtes n order to receve (provde) a transfer. Examples of polces grouped n the CSE nclude transfers to processors (frst consumers) to compensate them for hgher domestc prces and consumpton subsdes n cash or n knd to support consumpton levels. Note also that some polces that are grouped n the PSE also consttute the CSE. These relate to the polces that create output prce-based transfers. For example, a border tarff creates a prce gap between domestc and world prces, resultng n consumers payng a hgher prce for that product. Ths polcy measure results n transfers from consumers to producers and from consumers to government revenue (sectons 4.2 and 4.3 explan ths n greater detal). If yes, consder t under the CSE. 50. The TSE represents the sum of all three components, adjusted for double-countng gven that the transfers assocated wth market prce support polces appear n both the PSE and CSE calculaton. THE PSE MANUAL OECD

30 Chapter 3. Identfyng, Dstngushng and Classfyng Polces 3.3. Classfyng and labellng polces that support producers ndvdually (PSE) Polcy measures ncluded n the PSE are classfed accordng to specfc mplementaton crtera. These dentfy the economc features of polcy measures, whch are mportant for the consequent analyss of potental mpacts of polces on producton, ncome, consumpton, trade, and the envronment. Polcy measures are classfed nto seven categores whch dentfy the transfer bass for the polcy, whether the bass s current or non-current, and whether producton s requred or not. Polcy measures n each category are further dstngushed accordng to whether constrants are placed on output levels or nput use, whether the payment rate s varable or fxed, and whether the polcy transfer s specfc or not as to commodtes covered or excluded. Polcy measures may be classfed by category by label, or by both, accordng to ntended use Defnton of categores and sub-categores 51. The mpact of polcy measures on varables such as producton, consumpton, trade, ncome, employment and the envronment depend, among other factors, on the way polcy measures are mplemented. Therefore, to be helpful for polcy analyss, polcy measures to be ncluded n the PSE are classfed accordng to mplementaton crtera. For a gven polcy measure, the mplementaton crtera are defned as the condtons under whch the assocated transfers are provded to farmers, or the condtons of elgblty for the payment. However, these condtons are often multple. Thus, the crtera used to classfy payments to producers are defned n a way that facltates: the analyss of polces n the lght of the operatonal crtera defned by OECD Mnsters of Agrculture n 1998; the assessment n subsequent analyss of ther mpacts on producton, consumpton, ncome, employment, etc., through, for example, the Polcy Evaluaton Model (PEM); and the classfcaton of polcy measures n a consstent way across countres, polcy measures and over tme. 52. Polcy measures wth an envronmental focus llustrate the role of mplementaton crtera n the PSE classfcaton. Possble agr-envronmental payments nclude cost-sharng for the nstallaton of conservaton practces, or alternatvely the provson of a per hectare payment to motvate an abovestandard level of envronmental condton. Although n both cases the payments may have the same envronmental objectve, ther man mplementaton crtera are not the same, and the ncentves provded to farmers n terms of resource use and producton decsons may dffer. Hence, the two cases should not be consdered wthn the same category snce support s mplemented dfferently n each case. 53. As a result of several polcy developments, ncludng polcy reform ntatves and new measures of support, a new PSE classfcaton was ntroduced n The key underlyng prncple remans that polcy measures are classfed accordng to the way they are mplemented. The varous categores and sub-categores lsted n Box 3.2 have been constructed to dentfy the mplementaton crtera that are consdered to be the most sgnfcant from an economc perspectve and reflectng polces appled n OECD countres (the PSE categores, as they are presented n the PSE database are also shown n Table 3.1). The categores dentfy: The transfer bass for support: output (category A), nput (category B), area/anmal numbers/recepts/ncomes (categores C, D and E), non-commodty crtera (category F); Whether the support s based on a current (categores A, B, C, F) or non-current (hstorcal or fxed) bass (categores D and E); Whether producton s requred (categores C and D) or not (category E). 28 THE PSE MANUAL OECD 2010

31 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Box 3.2. Names and defntons of the PSE categores and sub-categores A. Support based on commodty output A.1. Market prce support (MPS) - transfers from consumers and taxpayers to agrcultural producers arsng from polcy measures that create a gap between domestc market prces and border prces of a specfc agrcultural commodty, measured at the farm gate level. A.2. Payments based on output - transfers from taxpayers to agrcultural producers from polcy measures based on current output of a specfc agrcultural commodty. B. Payments based on nput use: transfers from taxpayers to agrcultural producers arsng from polcy measures based on on-farm use of nputs: B.1. Varable nput use transfers reducng the on-farm cost of a specfc varable nput or a mx of varable nputs. B.2. Fxed captal formaton - transfers reducng the on-farm nvestment cost of farm buldngs, equpment, plantatons, rrgaton, dranage and sol mprovements. B.3. On-farm servces - transfers reducng the cost of techncal, accountng, commercal, santary and phyto-santary assstance, and tranng provded to ndvdual farmers. C. Payments based on current A/An/R/I 1, producton requred: transfers from taxpayers to agrcultural producers arsng from polcy measures based on current area, anmal numbers, recepts or ncome, and requrng producton. Category C s further Broken down to two sub-categores: C.1. Based on current recepts/ncome ncludng transfers through polcy measures based on recepts or ncome. C.2. Based on current area/anmal numbers ncludng transfers through polcy measures based area/anmal numbers. D. Payments based on non-current A/An/R/I, producton requred: transfers from taxpayers to agrcultural producers arsng from polcy measures based on non-current (.e. hstorcal or fxed) area, anmal numbers, recepts or ncome, wth current producton of any commodty requred. E. Payments based on non-current A/An/R/I, producton not requred: transfers from taxpayers to agrcultural producers arsng from polcy measures based on non-current (.e. hstorcal or fxed) area, anmal numbers, recepts or ncome, wth current producton of any commodty not requred but optonal. Category E s further dvded n two sub-categores accordng to the nature of payment rates used: E.1. Varable rates - transfers usng payment rates whch vary wth respect to levels of current output or nput prces, or producton/yelds and/or area. E.2. Fxed rates - transfers usng payment rates whch do not vary wth respect to these parameters. F. Payments based on non-commodty crtera: transfers from taxpayers to agrcultural producers arsng from polcy measures based on: F.1. Long-term resource retrement - transfers for the long-term retrement of factors of producton from commodty producton. The payments n ths subcategory are dstngushed from those requrng short-term resource retrement, whch are based on commodty producton crtera. F.2. A specfc non-commodty output - transfers for the use of farm resources to produce specfc noncommodty outputs of goods and servces, whch are not requred by regulatons. F.3. Other non-commodty crtera - transfers provded equally to all farmers, such as a flat-rate or lumpsum payment. G. Mscellaneous payments: transfers from taxpayers to farmers for whch there s nsuffcent nformaton to allocate them to the approprate categores. 1. The abbrevatons represent: A Area; An Anmal numbers; R Recepts; and I - Income THE PSE MANUAL OECD

32 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Table 3.1. PSE categores and labels PSE LABELS PSE CATEGORIES Current commodty producton and payment lmts Payment rates Input constrants Payment elgblty based on Producton exceptons Value of transfers, LC mllon 30 THE PSE MANUAL OECD 2010 Lmt No lmt Fxed Varable Wth (mandatory) Wth (voluntary) Anmal Recepts Income number Wth Sngle Group All A. Support based on commodty outputs A1. Market Prce Support commodty n na na na na na na na * na na na na commodty m, etc na na na na na na na * na na na na A2. Payments based on output commodty k na na na na * na na na na commodty l, etc. na na na na * na na na na B. Payments based on nput use B1. Varable nput use polcy measure b 11 na na na na na na polcy measure b 1n na na na na na na B2. Fxed captal formaton polcy measure b 21 na na na na na na polcy measure b 2n na na na na na na B3. On-farm servces polcy measure b 31 na na na na na na polcy measure b 3n na na na na na na C. Payments based on current A/An/R/I, producton requred C1. Based on current recepts/ncome polcy measure c 11 na na polcy measure c 1n na na C2. Based on current area/anmal numbers polcy measure c 21 na na polcy measure c 2n na na D. Payments based on non-current A/An/R/I, producton requred polcy measure d 1 na na polcy measure d n na na E. Payments based on non-current A/An/R/I, producton not requred E1. Varable rates polcy measure e 11 na na na polcy measure e 1n na na na E2. Fxed rates polcy measure e 21 na na na polcy measure e 2n na na na F. Payments based on non-commodty crtera F1. Long-term resource retrement polcy measure f 11 na na na * na na na na na na na na na na polcy measure f 1n na na na * na na na na na na na na na na F2. A specfc non-commodty output polcy measure f 21 na na na * na na na na na na na na na na polcy measure f 2n na na na * na na na na na na na na na na F3. Other non-commodty crtera polcy measure f 31 na na na na na na na na na na na na na na polcy measure f 3n na na na na na na na na na na na na na na G. Mscellaneous payments na na na na na na na na na na na na na na na na Wthout Area Commodty(es) Wthout Year 1 Year n Symbols: na PSE label not applcable to polcy measures n a gven category; * PSE label applcable to polcy measures n a gven category by defnton; LC local currency.

33 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Classfcaton crtera 54. The crtera for classfyng each of the polcy measures ncluded n the PSE nto a specfc category, as defned n the PSE classfcaton, are expressed through the followng sequence of questons. These crtera are mutually exclusve and are appled to each polcy measure sequentally. Dagram 3.1 below llustrates ths procedure. Although a gven polcy measure may be condtonal on several of the crtera, t s classfed under the frst applcable crteron. If a transfer to agrcultural producers provded through two (or more) polcy measures s avalable only as an aggregate amount, a sutable allocaton key s used to allocate t to the approprate categores Defnton of labels 55. In addton to classfcaton nto a category, each polcy measure s assgned several labels that provde addtonal detals on polcy mplementaton (Box 3.3). The sx labels contan nformaton on the constrants placed by polces on output and payment levels or nput use, further specfy the bass of transfer, ts commodty specfcty and varablty of payment rates. The alternatves offered by each label are exhaustve, so that only one of the avalable optons can be attrbuted to a payment. 56. Dstncton between the terms PSE category and PSE label s a matter of presentaton conventon. Table 3.1 shows that the PSE classfcaton s a matrx of varous polcy mplementaton crtera where PSE categores are presented along the vertcal axs and PSE labels along the horzontal axs. Labels only represent addtonal dmensons n whch the PSE can be broken down and, lke the PSE categores, are defned n terms of mplementaton crtera rather than polcy objectves. Labels could be used as an alternatve presentaton of polcy mplementaton; they also could theoretcally be presented as PSE sub-categores or sub-sub-categores. For example, n PSE category E, the wth varable or fxed payment rates label s used to create sub-categores E.1 and E.2. However, not all labels are applcable to all PSE categores (A to F). For example, the label specfyng whether a payment s based on a sngle, group or all commodtes s not applcable to polces n category E. Payments based on non-current A/An/R/I, producton not requred, or F. Payments based on noncommodty crtera. A label dstngushng payments based on area, anmal numbers, recepts or ncome s by defnton redundant for polces n categores A. Support based on commodty output and B. Payments based on nput use. Other labels could n the future be ntroduced and presented as subcategores f polcy developments warrant the change. In desgnng the structure of the PSE database, the choce between treatng a partcular mplementaton crteron as a sub-category or a label s one of relatve mportance and pragmatsm, rather than a conceptual dfference between these two optons. 57. The label wth/wthout current commodty producton lmts and/or lmts to payments relates, for example, to a producton quota assocated wth polcy measures n category A, or land setasde assocated wth polcy measures n category C. The label also apples to polcy measures that restrct the payment as such, ether by explctly settng a maxmum amount of payment, or by lmtng the number of anmals or land unts that may receve payment. For example, a programme that provdes an area payment for at the most 10 hectares s labelled as havng a payment lmt snce payments cease beyond that area lmt. 58. The label wth or wthout nput constrants serves to dstngush all PSE transfers (except those n category A.1) that can be provded under the condton that farmers respect certan producton practces consdered as envronmentally or anmal-welfare frendly, or whch address food safety or other socetal concerns. There s a further dstncton between mandatory and voluntary nput constrants. The former nclude requrements that relate to a generally applcable regulaton, whle the latter go beyond general regulatons and are adopted by farmers voluntarly. An example below llustrates these dstnctons. THE PSE MANUAL OECD

34 Chapter 3. Identfyng, Dstngushng and Classfyng Polces 59. An nterest concesson or captal grant can be provded: (a) for any on-farm producton nvestment for any purpose; (b) for an envronmental purpose (e.g. for on-farm manure treatment facltes), or to mprove the condtons n whch anmals are kept. In all of these cases, the concessons or grants are lnked to nvestment assocated wth commodty producton, and are all classfed n category B.2. Payments based on fxed captal formaton, despte the fact that such payments are made to acheve dfferent objectves. However, n the case of (a) the concesson or grant t s generally appled and s wthout constrants, whle n the case of (b) there are constrants as to the specfc use of nputs/farmng practces. The measures under (b) can be further dstngushed between those whch mply mandatory constrants (.e. nstallaton of manure treatment facltes) and those nvolvng voluntary constrants (.e. mprovng the condtons for anmals beyond the legal mnmum). Box 3.3. Names and defntons of the PSE labels Wth or wthout current commodty producton lmts and/or lmts to payments (wth/wthout L): defnes whether or not there s a specfc lmtaton on current commodty producton (output) assocated wth a polcy provdng transfers to agrculture and whether or not there are lmts to payments n the form of lmts to area or anmal numbers elgble for those payments. Appled n categores A F. Wth varable or fxed payment rates (wth V/F rates): a payment s defned as subject to a varable rate where the formula determnng the level of payment s trggered by a change n prce, yeld, net revenue or ncome or a change n producton cost. Appled n categores A E. Wth or wthout nput constrants (wth/wthout C): defnes whether or not there are specfc requrements concernng farmng practces related to the programme n terms of the reducton, replacement, or wthdrawal n the use of nputs or a restrcton of farmng practces allowed. Appled n categores A F. Payments condtonal on complance wth basc requrements that are mandatory (wth mandatory); Payments requrng specfc practces gong beyond basc requrements and voluntary (wth voluntary). Based on area, anmal numbers, recepts or ncome (based on A/An/R/I): defnes the specfc attrbute (.e. area, anmal numbers, recepts or ncome) on whch the payment s based. Appled n categores C E. Based on a sngle commodty, a group of commodtes or all commodtes (based on SC/GC/AC): defnes whether the payment s granted for producton of a sngle commodty, a group of commodtes or all commodtes. Appled n categores A D. Wth or wthout commodty exceptons (wth/wthout E): defnes whether or not there are prohbtons upon the producton of certan commodtes as a condton of elgblty for payments based on non-current A/An/R/I of commodty(es). Appled n Category E Work examples 60. The examples presented n Dagram 3.1 llustrate how the crtera n sub-sectons and are used to classfy polcy measures nto the varous PSE categores and sub-categores, and whch labels are attached to the polcy (sub-secton 3.3.3). 15 The examples start wth category A.2. Payments based on output, snce market prce support polces (category A.1. Market Prce Support) are explaned n Chapter 4 n consderable detal. 61. For each polcy measure, t s understood that the questons precedng ts assgnment to that category are answered consstently wth ts assgnment. So, for example, a polcy measure classfed n category B.1. Payments based on varable nput use entals answerng yes to queston 5 (Dagram 3.1), but to reach queston 5 one must answer yes to questons 1, no to queston 2, and yes to questons 4 and 5. For reasons of space, the answers to each precedng queston are not lsted for the examples; however, where necessary, comments on classfcaton are ntroduced. 15. A full nformaton on how each polcy measure s classfed n ndvdual OECD and non-oecd countres s contaned n the document enttled Defntons and Sources, whch together wth country PSE excel fles s avalable on 32 THE PSE MANUAL OECD 2010

35 Go to queston 7 Go to queston 11 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Dagram 3.1 PSE classfcaton decson tree Queston 1: Does the polcy measure provde an mplct or explct transfer to ndvdual producers on the bass of output, nputs, area, anmal numbers, recepts or ncome used for or resultng from current or former commodty producton? No, go to queston 11 Yes, go to queston 2 Queston 2: Does the polcy measure provde a transfer to agrcultural producers that s condtonal and based on current commodty output? No, go to queston 4 Yes, consder t under A. Support based on commodty output Queston 3: Does the polcy measure affect the domestc market prce for consumers and producers of a specfc commodty? Yes, consder t under No, consder t under and go to queston 3 A.1. Market Prce Support A.2. Payments based on output Queston 4: Does the polcy measure provde an explct or mplct payment to ndvdual producers usng a specfc nput, or group of nputs, or servces to produce agrcultural commodtes? No, go to queston 7 Yes, consder t under B. Payments based on nput use and go to queston 5 THE PSE MANUAL OECD

36 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Queston 5: Does the polcy measure reduce the on-farm cost of a sngle, or a set of, varable nputs (fertlsers, pestcdes, anmal feed, seeds, water, energy, hred labour, etc.), the mantenance and operaton costs of captal (plant, machnery, buldngs, etc.), or other varable costs (nterest concessons on loans for the purchase of varable nputs, nsurance premums, etc.)? No, go to queston 6 Yes, consder t under B.1. Payments based on varable nput use Queston 6: Does the polcy measure reduce the on-farm nvestment cost of fxed captal (e.g. farm buldngs, equpment, plantatons, sol mprovement, dranage and rrgaton), ncludng nterest concessons on nvestment loans? Go to Queston 8 From queston 4 Yes, consder t under No, consder t under Queston 7: Does the polcy measure provde a payment to agrcultural producers condtonal on plantng crop(s) or on mantanng a herd of lvestock, and based on the current area (A), anmal numbers (An), recepts (R), or ncome (I) of a sngle commodty, a specfc group of commodtes, or all commodtes? No, go to queston 8 Yes, consder t under B.2. Payments based on fxed captal formaton B.3. Payments based on on-farm servces C. Payments based on current A/ An/ R/I producton requred C.1. Payments based on current Revenue / Income or C.2. Payments based on current Area / Anmal Numbers 34 THE PSE MANUAL OECD 2010

37 Go To Queston 11 From queston 7 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Queston 8: Does the polcy measure provde a payment to agrcultural producers condtonal on plantng crop (s) or on mantanng a herd of lvestock, and based on the non-current(past or fxed) area (A), anmal numbers (An), recepts (R), or ncome (I) of a sngle commodty, a specfc group of commodtes, or all commodtes? No, go to queston 9 Yes, consder t under D. Payments based on non-current A/An/R/I producton requred Queston 9. Does the polcy measure provde a payment to agrcultural producers on condton that ther land remans n the agrcultural sector, and based on non-current (hstorcal or fxed) area (A), anmal numbers (An), recepts (R), or ncome (I) of a sngle commodty, a specfc group of commodtes, or all commodtes but not requred to produce commodtes? No, go to queston 11 Yes, consder t under E. Payments based on non-current A/An/R/I producton not requred Queston 10: Is the payment defned as a varable rate (e.g. dependent on a varaton of output or nput prces)? and go to queston 10 Yes, consder t under No, consder t under E.1. Varable rates E.2. Fxed rates THE PSE MANUAL OECD

38 From queston 9 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Queston 11. Does the polcy measure provde an mplct or explct transfer to ndvdual producers on the bass of non-commodty crtera (e.g. for long-term resource retrement, creaton of buffer strps, preservaton of endangered speces, constructon of stone walls or preservaton of hedges)? No, consder t under G. Mscellaneous payments (classfy t provsonally and try to get more nformaton on how the polcy s mplemented) Yes, consder t under F. Payments based on non-commodty crtera and go to queston 12 Queston 12: Does the polcy measure requre the long-term retrement of factors of producton from commodty producton (e.g. retrement of land from producton, permanent reducton n mlk producton, afforestaton or destroyng trees n orchards or vneyards)? No, go to queston 13 Yes, consder t under F. I. Payments based on long term resource retrement Queston 13: Does the polcy measure requre the use of farm resources to produce specfc non-commodty outputs (e.g. to plant hedges or buld stone walls), whch can be consdered as ether goods produced (e.g. hedges or stone walls) or servces provded (e.g. protectng bodversty or mprovng the countrysde)? Yes, consder t under No, consder t under F.2. Payments based on a specfc non-commodty output F.3. Payments based on other non-commodty crtera 36 THE PSE MANUAL OECD 2010

39 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Table 3.2. Work examples of PSE categores and labels Labels Categores Wth or wthout current commodty producton lmts Wth varable or fxed payment rates Wth or wthout nput constrants Based on area, anmal numbers, recepts or ncome Based on a sngle commodty, a group of commodtes or all commodtes Wth or wthout commodty producton exceptons wth/ wthout L wth V/F rates wthout C/ wth mandatory C/ wth voluntary C A/An/R/I SC/GC/AC wth/ wthout E A.2. Payments based on output Loan defcency payments (US) Mlk Prce Supplement for Cheese Producton 2 (Swtzerland) wthout L V wth mandatory C na 1 SC na Payments are made on a per tonne bass to producers elgble for prce support loans who agree to forego the loan. The payment s the dfference between the loan rate and the domestc market prce, multpled by the quantty of each specfc commodty for whch the loan defcency payment s requested, or otherwse elgble for on a crop year bass. It s labelled a varable payment rate as the level of payment s determned by fluctuatons of market prce. Payments are subject to nput constrants under the conservaton complance. wth L F wthout C na SC na Payment per tonne of mlk granted to farmers delverng mlk to cheese producers. As ths payment s made for mlk wthn a producton quota, t s labelled wth current producton lmts. B.1. Payments based on varable nput use wthout L V or F wthout C na AC na Fuel tax concessons 3 Irrgaton subsdy (Mexco) Tax concesson on desel fuel for farmers relatve to the standard tax rate. The polcy s labelled as beng wthout nput constrants. To be labelled as wth nput constrants, a lmt on total fuel use on farm would have to be n place. Labellng of the polcy measure wth respect to varable or fxed payment rate depends on whether the amount of concesson changes when the prce of fuel changes. If yes, t s labelled as varable rate; f not, t s labelled as fxed rate. Snce t s avalable to all producers, t s labelled as supportng all commodtes. wthout L F wthout C na GC na Reduced electrcty rates are set for groundwater pumpng n agrculture. As the dscount s fxed, the subsdy s labelled as fxed rate. No lmts on current producton or constrants on water use are set as elgblty condtons. All farmers are elgble for preferental electrcty tarffs, and so the subsdy s labelled as beng avalable for all crop commodtes. THE PSE MANUAL OECD

40 Categores Wth or wthout current commodty producton and/or payment lmts wth/ wthout L B.2. Payments based on fxed captal formaton Interest concessons on nvestment loans (e.g. Brazl) Captal grants for onfarm nfrastructure (Japan) Property tax exemptons (Canada provncal governments) B.3 Payments based on on-farm servces Extenson and advsory servces (e.g. Australa, Iceland, Japan, Korea, Mexco) Chapter 3. Identfyng, Dstngushng and Classfyng Polces Wth varable or fxed payment rates wth V/F rates Wth or wthout nput constrants wthout C/ wth mandatory C/ wth voluntary C Labels Based on area, anmal numbers, recepts or ncome Based on a sngle commodty, a group of commodtes or all commodtes Wth or wthout commodty producton exceptons A/An/R/I SC/GC/AC wth/ wthout E wthout L V wthout C na AC na Subsdsng nterest rates provdes support to producers for buldng up ther captal stock. The preferental nterest rate s fxed below the market rate and the subsdy rate changes as a result of movements n market nterest rate (the reference nterest rate for calculatng the level of the concesson provded) and so t s labelled as a varable payment rate. There are no nput constrants condtonng the elgblty for concesson. Snce t s avalable to all producers, t s labelled as supportng all commodtes. wthout L F wthout C na AC na Budgetary allocatons for the on-farm nfrastructure mprovement scheme, ncludng constructon of rrgaton and dranage facltes and land re-parcellng. The assstance s provded wthout producton lmts or constrans on nput use. As the amount of payment does not change wth the varaton of current output, prces, or current producton costs, t s labelled as a fxed payment rate. Snce the payment avalable to all producers, t s labelled as supportng all commodtes. wthout L F wthout C na AC na Provdes an mplct payment to producers proportonal to the value of ther property, ntended as agrcultural captal. As the mplct payment depends on the amount of land only, t s labelled as havng a fxed payment rate. Snce t s avalable to all producers, t s labelled as supportng all commodtes. wthout L F wthout C na GC or AC na Federal and provncal expendtures for the actvtes related to the provson of nformaton, tranng and servces drectly to farmers. Ths category may also nclude the techncal assstance component of other programmes, such as conservaton programmes. Pest and dsease control AAA Farm Busness Improvement Programme (FarmBs) (Australa) wthout L F wthout C na GC or AC na The slaughterng of anmals for dsease-related concerns falls nto ths category, for example. Such payment s labelled as wthout nput constrants, snce the destructon of lvestock s not a constrant on the amount of or use to whch (non-slaughtered) anmals may be put. wthout L F wthout C na AC na Provdes fnancal support to assst farmer partcpaton n learnng actvtes to mprove the management of ther busness, natural and human resources. It s avalable to elgble farmers ndependently of the commodtes they produce and so s labelled as supportng all commodtes. 38 THE PSE MANUAL OECD 2010

41 Categores Wth or wthout current commodty producton and/or payment lmts wth/ wthout L C.1. Payments based on current R/I, producton requred Chapter 3. Identfyng, Dstngushng and Classfyng Polces Labels Wth varable or fxed payment rates wth V/F rates Wth or wthout nput constrants wthout C/ wth mandatory C/ wth voluntary C Based on area, anmal numbers, recepts or ncome Based on a sngle commodty, a group of commodtes or all commodtes Wth or wthout commodty producton exceptons A/An/R/I SC/GC/AC wth/ wthout E Income tax concessons (US) wthout L F wthout C I AC na Income tax concessons to agrculture relatve to the standard ncome tax provsons nclude: deductons from taxable ncomes from farmng; farmers marketng and purchasng co-operatves; and export transactons of agrcultural commodtes. The mplct transfer to producers s based on farmng ncome, and so s labelled as based on ncome. Snce t s avalable to all producers, t s labelled as supportng all commodtes. C.2. Payments based on current A/An, producton requred wthout L V wthout C A SC na Crop nsurance payments (Canada) Payments to organc crop farmng (EU) 4 Agr-envronmental grass premum (EU France) 5 Government contrbuton to a voluntary crop nsurance scheme whch covers between 70% and 90% of average yeld (dependng on the crop and provnce) over a 10 to 15-year perod. Farmers fnance one half of the scheme but over the years government contrbutons have amounted to 56% of ndemntes pad. It s labelled as SCT, even though many dfferent commodtes are covered by the programme, because the programme s admnstered on a commodty-specfc bass, each elgble commodty havng a partcular reference yeld and payment beng based on the actual yelds of specfc commodtes. In ths sense, t s lke a sngle-commodty polcy repeated for many dfferent commodtes. A varable rate s attrbuted to the payment because t s a functon of current yeld as compared wth a reference yeld and not smply area. Ths programme s labelled as a payment based on area because payments are made on a per-hectare bass. Had t been a subsdy to purchase crop nsurance from a prvate nsurance company, t would be classfed under B.1 as a subsdy to a varable cost: nsurance. wthout L F wth voluntary C A GC na Provdes payments per hectare for a subset of commodtes. Snce, n order to receve the payment, organc producers have to use specfc producton methods gong beyond basc requrements, t s labelled as wth voluntary nput constrants. Transfers are allocated to commodty group All crops. wthout L F wth voluntary C A GC na Provdes a payment per hectare of grassland farmed extensvely. Farmers have to fulfl specfc oblgatons for fve years. These oblgatons are defned at the local level and nclude a maxmum stockng densty, a mnmum share of grass land n total agrcultural area, the mantenance of permanent and temporary pastures, the requrement to cut the grass (f not used as pasture), lmts on fertlser applcaton, the preservaton of fxed landscape features, strong restrctons on pestcde use, and regstraton of practces. There are nput constrants to satsfy but the level of payment s not affected by the level of nput use (as n the Grassland Reserve Program classfed n B.2). There s no lmt on how much grass can be produced and thus no producton lmts. THE PSE MANUAL OECD

42 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Categores Wth or wthout current commodty producton and/or payment lmts wth/ wthout L D. Payments based on non-current A/An/R/I, producton requred Wth varable or fxed payment rates wth V/F rates Wth or wthout nput constrants wthout C/ wth mandatory C/ wth voluntary C Labels Based on area, anmal numbers, recepts or ncome Based on a sngle commodty, a group of commodtes or all commodtes Wth or wthout commodty producton exceptons A/An/R/I SC/GC/AC wth/ wthout E Structural ncome support for mlk producton (Norway) Wth L F wthout C R SC na Provdes a lump sum payment to all farms wth fve or more cows. Snce 99.85% of farms exceed the mnmum n terms of anmal unts, ths polcy s classfed as a transfer not dependent on current commodty parameters but requrng producton. As ths payment s made for mlk wthn a producton quota, t s labelled wth current producton lmts. The payment does not vary wth prces, ncome or cost, and so s labelled as havng a fxed payment rate. E.1. Payments based on non-current A/An/R/I, producton not requred, varable rates wth L V wth mandatory C A na wth E Counter cyclcal payments (US) Payment for wheat, feed grans, upland cotton, rce, olseeds and peanuts defned as the natonal payment rate per tonne for each specfc crop tmes the producer s payment base yeld and multpled by 85% of the producer s payment elgble base area. Base area and yelds may be those from the 1996 Farm Act or the averages. For each commodty, the natonal payment rate per tonne s the dfference between the target prce and the trgger level, whch s the return per tonne (.e. the hgher the market prce or loan rate) plus the Drect Payment per tonne, and so s labelled as havng a varable payment rate. The payment s labelled wth nput constrants because elgble producers are requred to comply wth certan conservaton and wetland provsons. The land must be kept n agrcultural uses (whch ncludes fallow) and producers are permtted to plant all cropland acreage on the farm to any crop, except for lmtatons on plantng fruts and vegetables, and so s labelled wth commodty exceptons. E.2. Payments based on non-current A/An/R/I, producton not requred, fxed rates wth L F wth mandatory C R na wth E Sngle payment scheme (hstorc) (EU) Payment enttlements per farm based on the farm s hstorc reference amounts of premums for most crop and lvestock commodtes receved durng the perod The value of enttlements s the total reference amount of the farm dvded by the number of hectares that gave rght to payments n the reference perod. Sngle payment scheme s subject to cross-complance condtons (the amount of payment s reduced f the farmer does not comply), and so s labelled wth mandatory nput constrants. Producton s not requred but producers may produce any commodty (wth the excepton of fruts and vegetables). It s therefore labelled as wth commodty exceptons. From 1 January 2008, wth the frut and vegetable reform enterng nto force, the commodty excepton ceases to be bndng, but a Member State may choose to keep the commodty exempton for a transtory perod untl 1 January THE PSE MANUAL OECD 2010

43 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Categores Sngle payment scheme (regonal) (EU) Wth or wthout current commodty producton and/or payment lmts wth/ wthout L Wth varable or fxed payment rates wth V/F rates Wth or wthout nput constrants wthout C/ wth mandatory C/ wth voluntary C Labels Based on area, anmal numbers, recepts or ncome Based on a sngle commodty, a group of commodtes or all commodtes Wth or wthout commodty producton exceptons A/An/R/I SC/GC/AC wth/ wthout E wth L F wth mandatory C A na wthout E Payment enttlements per hectare based on the regonal, hstorc reference amounts of premums for most crop and lvestock commodtes receved durng the perod The value of the per hectare enttlement s the total reference amount of the regon dvded by the number of elgble hectares. Producton s not requred and there are no restrctons on the commodtes that can be produced, and so t s labelled wthout commodty exceptons. F.1. Payments based on non-commodty crtera: long-term resource retrement wthout L na wth voluntary C na na na Afforestaton (EU) 4 Conservaton Reserve Program (US) Payments per hectare to encourage the alternatve use of agrcultural land for forestry or actvtes related to forestry n farm holdngs. Land s retred from agrcultural producton, and therefore, followng a negatve response to queston 1 (sub-secton 3.3.2), the classfcaton leads drectly to queston 11 and then 12. Polces n category F.1 are automatcally labelled as beng wth nput constrants. nawthout L na wth voluntary C na na na Provdes annual rental payments and cost-sharng assstance to establsh long-term, resource-conservng cover on elgble farmland. It s classfed n F.1 because of the long-term nature of the Program, nvolvng year agreements. The payment s classfed as wth nput constrants because the land s taken out of producton. F.2. Payments based on non-commodty crtera: a specfc non-commodty output Payments for Hedges and Rustc Groves (Swtzerland) Payments for Floral Fallow (Swtzerland) nawthout L na wth voluntary C Na na na Payment per hectare of hedge and rustc grove (ncludng 3-metre-wde compulsory grass strps along them), cultvated wthout fertlsers and plant protecton products. Payment s lmted to 50% of the cultvated area on farms of more than 3 hectares and the rate of payment decreases wth the alttude of the farmng locaton. The payment s classfed as wth nput constrants because the land s taken out of producton and the grass strps are cultvated wthout fertlsers and chemcals. nawthout L na wth voluntary C na na na Payment per hectare of floral fallow cultvated wth wld ndgenous speces wthout fertlsers and plant protecton products, and for whch harvest s authorsed once every two years and whch cannot be used for fodder (to protect nestng brds). Payment s lmted to 50% of the cultvated area on farms of more than 3 hectares and the rate of payment s fxed. Harvest cannot be used for fodder, so the answer to the queston 1 of the classfcaton crtera s negatve, and a negatve response s gven to queston 12 and postve to queston 13. The payment s classfed as wth nput constrants because t mples a constrant on the producton method. THE PSE MANUAL OECD

44 Chapter 3. Identfyng, Dstngushng and Classfyng Polces Notes to Table The abbrevaton na ndcates that the partcular label s not applcable to the respectve PSE category. 2. Supplément de prx pour le lat transformé en fromage. 3. Countres provdng fuel tax rebates nclude Australa, Canada, Japan, Mexco, Norway, Swtzerland, the US, and the majorty of EU countres. 4. Polcy measure provded for under European Commsson Regulaton 2078/92 and the Rural Development Regulaton (RDR). 5. Prme herbagère agro-envronnementale. 42 THE PSE MANUAL OECD 2010

45 Chapter 3. Identfyng, Dstngushng and Classfyng Polces 3.4. Classfyng polces that support producers collectvely (GSSE) Polcy measures ncluded n the General Servces Support Estmate (GSSE) are classfed nto one of seven categores accordng to the nature of the servces provded to agrculture generally (and not to ndvdual producers or consumers) Defnton of categores and classfcaton crtera 62. The transfers n the GSSE are payments to elgble prvate or publc servces provded to agrculture generally. Unlke the PSE and CSE, the GSSE transfers are not destned to ndvdual producers or consumers, and do not drectly affect farm recepts (revenue) or consumpton expendture, although they may affect producton or consumpton of agrcultural commodtes n the longer term. 63. Whle mplementaton crtera are used to dstngush whether the transfer s allocated to PSE or GSSE (sectons 3.1 and 3.2), the defnton of the categores n the GSSE and the allocaton of polcy measures to these categores s accordng to the nature of the servce. These categores are named and defned n Box 3.4. Box 3.4. Names and defntons of the GSSE categores H. Research and development: budgetary payments fnancng research and development actvtes mprovng agrcultural producton. I. Agrcultural schools: budgetary payments fnancng agrcultural tranng and educaton. J. Inspecton servces: budgetary payments fnancng control of qualty and safety of food, agrcultural nputs and the envronment. K. Infrastructure: budgetary payments fnancng mprovement of off-farm collectve nfrastructure. l. Marketng and promoton: budgetary payments fnancng assstance to marketng and promoton of agro-food products. M. Publc stockholdng: budgetary payments meetng the costs of storage, deprecaton and dsposal of publc storage of agrcultural products. N. Mscellaneous: budgetary payments fnancng other general servces that cannot be dsaggregated and allocated to the above categores due, for example, to a lack of nformaton Dscusson 64. The Research and development category ncludes payments to nsttutons for research related to agrcultural technologes and producton methods. In most cases, these payments nclude the fnancng of publc research nsttutons (mostly through the budget of the mnstry of agrculture), as well as grants fnanced by publc fundng provded to prvate research nsttutons and agrcultural unverstes. 65. The Agrcultural schools category ncludes the publc fundng of educaton and tranng targeted specfcally on the agrcultural sector. These payments do not nclude publc expendture whch fnances basc school educaton. They cover publc expendture on agrcultural vocatonal schools and tranng for farmers. Where educatonal establshments provde tranng beyond prmary agrculture, a sutable estmaton method should be sought n order to nclude only servces provded to farmng. 66. The Inspecton servces category ncludes payments to fnance nsttutons for the control of food qualty, anmal health, and agrcultural nputs. In most cases, these servces are fnanced by THE PSE MANUAL OECD

46 Chapter 3. Identfyng, Dstngushng and Classfyng Polces publc (governmental) organsatons, and hence the budgets of these organsatons are ncluded n the GSSE. Should these servces be provded by prvate nsttutons, the GSSE should account only for the amount of publc fnance granted to these nsttutons. If the unpad servces are provded on farms (e.g. anmal vaccnatons), the correspondng costs should be allocated to the PSE (category B.3 Payments based on on-farm servces). However, expendtures wth respect to quarantne systems, even f appled at the farm level, are ncluded n the GSSE. 67. The Infrastructure category ncludes publc expendture fnancng the development of producton-related nfrastructure n rural areas. Specal care should be gven to dstngush support between on- and off-farm nfrastructures. For example, structural mprovement measures such as farm consoldaton, constructon of rrgaton and dranage nstallatons on farms are ncluded n the PSE, as drect nvestment assstance. The physcal on-farm (PSE) and off-farm (GSSE) prncple for classfcaton of nfrastructural expendtures n the PSE or GSSE s a matter of conventon, requred for consstent treatment of varous nfrastructural programmes across countres. 68. Marketng and promoton covers publcly (co)fnanced nvestments n development of agrcultural marketng and processng, typcally carred out wthn projects related to the structural adjustment and compettveness of the agrcultural sector. Ths category also ncludes forms of government assstance to ncrease sales of prmary agrcultural commodtes, such as agrcultural exhbtons, fars, promotonal campagns, advertsng, and publcatons Classfyng polces that support consumers (CSE) The CSE ncludes prce transfers from consumers, whch s the nverse value of Market Prce Support, adjusted to apply to quanttes consumed (rather than quanttes produced). Other polces classfed n the CSE are budgetary transfers to frst-stage consumers to compensate for ther contrbuton to market prce support, as well as consumpton subsdes based on the dsposal of nterventon stocks. 69. As descrbed n Secton 3.2 (Queston 3), a component of the CSE s transfers assocated wth market prce support for the producton of commodtes that are consumed domestcally; these are called prce transfers from (to) consumers. These transfers are the same as those ncluded n the PSE under category A.1 Market Prce Support, but they are gven an opposte sgn n the CSE and adjusted to apply to quanttes consumed (as opposed to quanttes produced n the PSE). The concept s explaned n detal n Chapter Another type of payment classfed under the CSE s budgetary transfers to frst consumers of agrcultural commodtes, e.g. flour mlls, meat processng plants, or frut packng plants, where these are provded specfcally to offset the hgher prces resultng from market prce support. An example s payments made to processors who pay the guaranteed mnmum prce to producers of potato starch and cotton n the European Unon. Another example s a premum for commercal buyers n Brazl, whereby the government compensates to commercal buyers of agrcultural commodtes processors or other downstream agents the dfference between the mnmum guaranteed prce for the product and the prce the buyer s actually wllng to pay. Recept of the premum s contngent on payng agrcultural producers the mnmum guaranteed prce. 71. Fnally, consumpton subsdes n cash or n knd (ther monetary equvalent) assocated wth programmes of market prce support for domestc producers are also ncluded n the CSE. Ths component ncludes, for example, domestc food ad programmes whch are based on the dstrbuton of government stocks acqured n the context of market nterventons. 44 THE PSE MANUAL OECD 2010

47 Chapter 4. Estmatng Polcy Transfers: Prce Transfers CHAPTER 4. ESTIMATING POLICY TRANSFERS: PRICE TRANSFERS 72. Once polces have been dentfed for ncluson n the measurement of support and approprately classfed, the next step s to estmate the value of transfers created by these polces. Polcy transfers are dvded nto the followng broad groups: prce transfers, and other transfers (.e. budgetary transfers and revenue foregone). Ths chapter shows how to estmate prce transfers, whle Chapter 5 dscusses the estmaton of other transfers. 73. The chapter begns wth a theoretcal dscusson regardng transfers that arse from polces that affect domestc market prces. Polces that ncrease and decrease domestc market prces are dfferentated for both mportng and exportng stuatons. The followng two sectons explan how prce transfers to producers and consumers are estmated. The fourth secton dscusses the estmaton of the Market Prce Dfferental, an ntegral component of prce transfers Prce transfers arsng from polcy measures: a graphcal analyss Polcy measures whch affect the domestc prce of a commodty result n a Market Prce Dfferental (MPD). Polces whch ncrease domestc market prces (a postve MPD) create transfers to producers from consumers. When the commodty s exported, producers also receve transfers from taxpayers. When the commodty s mported, addtonal transfers go from consumers to others, ncludng central government, n the form of tarff revenue. Polces whch decrease domestc market prces (a negatve MPD) create transfers from producers to consumers. When the commodty s mported, consumers also receve transfers from taxpayers. When the commodty s exported, addtonal transfers go from producers to others, ncludng central government. 74. The key theoretcal assumpton underlyng the estmaton of support s that agrcultural markets are compettve. The characterstcs of compettve markets, such as perfect nformaton, homogenety of products traded and free entry and ext, mply prce arbtrage. Market agents explot and gan from prce dfferences across markets. Theoretcally, prce arbtrage works to dsspate prce wedges between domestc and world market, so that there s a stable tendency of domestc prces to algn wth external prces when expressed n a common currency unt. 9 In ths context, a persstent prce dfferental between the domestc and external markets s the result of government nterventons. 9. Ths nfluence of arbtrage on prces of dentcal commodtes exchanged n two or more markets s often referred to as the law of one prce. Ths law states that n an effcent market there must be, n effect, only one prce for dentcal commodtes regardless of where and how they are traded (although n nomnal terms prces n dfferent locatons and along the value chan dffer accordng to transacton and processng costs). THE PSE MANUAL OECD

48 Chapter 4. Estmatng Polcy Transfers: Prce Transfers As such, ths prce dfferental becomes a key parameter for estmatng transfers arsng from government s prce polces. 75. A varety of government polcy measures may affect the domestc market prce of a commodty, ncludng measures mposed at the border, such as tarffs and export subsdsaton, as well as quotas on mports or exports. Domestc market nterventons may nclude drect prce admnstraton and publc stockholdng. All these polcy nterventons alter the domestc market prce of a commodty compared to ts border prce. 76. Ths polcy-nduced prce dfference s denoted as the Market Prce Dfferental (MPD): MPD DP BP [4.1] where: MPD Market Prce Dfferental DP BP domestc market prce border prce 77. MPD s postve when the polcy nduces a hgher domestc market prce, thereby supportng commodty producton. It s negatve when the polcy nduces a lower domestc market prce, thereby dscouragng commodty producton. 10 In the latter case, polces place a tax on producers, and prce transfers are accounted for n estmated support wth a negatve sgn. Polces whch alter the domestc market prce affect both producers and consumers of a commodty; but they can also nvolve transfers to or from the government budget and therefore have mplcatons for taxpayers. 78. Usng a partal equlbrum framework, Fgures 4.1 and 4.2 llustrate the prce transfers assocated wth polces that ncrease or decrease the domestc market prce of a commodty respectvely. In both cases, a dstncton s made accordng to whether the commodty s mported or exported. Domestc supply and demand curves are denoted by SS and DD respectvely. The varous prce transfers are dstngushed accordng to three economc groups producers, consumers and others (ncludng taxpayers) recevng and fnancng these transfers. 79. Panel A of Fgure 4.1 presents the case where polces that ncrease the domestc market prce are ntroduced on an mported commodty. In the absence of these polces, equlbrum wll be reached n the domestc market when the domestc prce s equal to the mport prce (MP), wth domestc producton equal to QP 1 and domestc consumpton equal to QC 1. The dfference between demand and supply, QC 1 QP 1, s met by mports. 10. In ths dscusson, and n the calculaton of the ndcators n general, postve and negatve prce gaps and the concept of support, are descrbed from the perspectve of the producer. The perspectve of the consumer s the reverse. Polces whch rase market prces dscourage consumpton; polces whch lower market prces support consumpton. 46 THE PSE MANUAL OECD 2010

49 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Fgure 4.1. Prce transfers assocated wth polces that ncrease the domestc market prce A. Imported commodty B. Exported commodty S D D S MPD > 0 DP MP b TPC a S c d OTC e f D DP d MPD > 0 XP h TPC g j TPT T D S l k QP 1 QP 2 QC 2 QC 1 QC 2 QC 1 QP 1 QP Polces that ncrease the domestc market prce are now ntroduced, e.g. a tarff. Producers beneft from a hgher prce, encouragng them to produce more; on the other hand, consumers reduce consumpton. A new domestc market equlbrum s reached at prce DP, resultng n a postve MPD; wth producton rsng to QP 2, consumpton fallng to QC 2, and the volume of mports fallng to QC 2 QP In the mport stuaton, polces whch ncrease domestc market prce create the followng prce transfers: Transfers to Producers from Consumers (TPC), wth the value correspondng to rectangle abcd: TPC MPD QP [4.2] Other Transfers from Consumers (OTC), wth the value correspondng to rectangle dcef. These transfers are due to the fact that consumers pay the hgher prce DP for all consumpton, whether the commodty s produced domestcally or mported: OTC MPD QC QP [4.3] 82. When there s only a tarff n place, the area dcef measures transfers from consumers to the budget n the form of tarff recepts. However, when other polcy measures are used, e.g. tarff quotas, who receves ths transfer from consumers depends on what measures are n place and how they are mplemented. For example, f tarff quota mports are controlled through lcences and dstrbuted on a frst-come-frst-served bass, part or all of the transfer (termed quota rents ) may be obtaned by those who receve the lcences, whether domestc mporters or foregn exporters. But no matter who receves the transfers (n the form of tarff revenue or quota rents), they have been pad by consumers. 83. Panel B n Fgure 4.1 presents the case where polces that ncrease the domestc market prce are ntroduced on an exported commodty. In the absence of polces, equlbrum wll be reached n the domestc market when the domestc prce s equal to the export prce (XP). At ths prce, producton s equal to QP 1 and consumpton equal to QC 1. In ths case, the dfference between supply and demand, QP 1 QC 1, s exported. THE PSE MANUAL OECD

50 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 84. Polces that ncrease domestc market prces are now ntroduced. Consequently, the domestc prce (DP) ncreases above the export prce, creatng a postve MPD. Producers beneft from a hgher prce, whch encourages them to ncrease producton to QP 2 ; consumers now pay a hgher prce, whch results n a reducton n consumpton to QC 2 ; and the quantty exported ncreases to QP 2 QC In the export stuaton, polces whch rase domestc market prces create the followng prce transfers: Transfers to Producers from Consumers (TPC), wth the value correspondng to rectangle ghj: TPC MPD QC [4.4] Transfers to Producers from Taxpayers (TPT), wth the value correspondng to rectangle jkl. These transfers represent the part of producer prce support borne by taxpayers n the form of budgetary outlays on export subsdsaton, food ad or publc stockholdng: TPT MPD QP QC [4.5] 86. An mportant dstncton between the mport and export stuatons s that n the former only part of total prce transfers created (abef) s receved by producers (TPC), and ths part s entrely fnanced by consumers. In the export case, all transfers (ghkl) are receved by producers, and ther cost s shared between consumers and taxpayers. 87. A smlar analyss can be done for the stuaton where polces that nduce a lower domestc market prce are ntroduced,.e. when a negatve MPD s observed (Fgure 4.2). Panel A shows the outcome when such polces are ntroduced on an mported commodty. In the absence of polces, equlbrum wll be reached n the domestc market when the domestc prce s equal to the mport prce (MP). At ths prce, producton s equal to QP 1 ; consumpton equal to QC 1 ; and the dfference between demand and supply, QC 1 QP 1, s mported. Fgure 4.2. Prce transfers assocated wth polces that decrease the domestc market prce A. Imported commodty B. Exported commodty S D D S MPD < 0 MP b TPC c OTC e MPD < 0 XP h TPC k TPT DP a S d f D DP g j D S l QP 2 QP 1 QC 1 QC 2 QC 1 QC 2 QP 2 QP 1 48 THE PSE MANUAL OECD 2010

51 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 88. Polces that decrease the domestc market prce are now ntroduced. For example, the government wshes to lower food prces by settng admnstratve lmts on domestc prces and subsdsng mported product. Consequently, the domestc prce (DP) falls below the mport prce, creatng a negatve MPD. Producton falls to QP 2 and consumpton rses to QC 2. In ths case, n contrast to Panel A, Fgure 4.1, there s an ncrease n the volume of mports, QC 2 QP 2. In the mport stuaton, polces that decrease domestc prces create prce transfers to consumers (abef) from producers (TPC) and taxpayers (OTC). 89. Panel B of Fgure 4.2 presents the case for an exported commodty. In the absence of polces, equlbrum wll be reached n the domestc market when the domestc prce s equal to the export prce (XP). At ths prce, producton s equal to QP 1 and consumpton s equal to QC 1. In ths case, the dfference between supply and demand, QP 1 QC 1, s exported. 90. Polces that decrease the domestc market prce are now ntroduced. For example, the government may regard agrculture as a source of budgetary revenue and mpose a tax on agrcultural exports. Such a polcy of low food prces may also be n accordance wth the government s socal objectves. Consequently, the domestc prce (DP) decreases, creatng a negatve MPD. Producton falls to QP 2, and consumpton rses to QC 2, leadng to a decrease n the volume of exports, QP 2 QC 2. In the export stuaton, polces that reduce the domestc market prce of a commodty create transfers to consumers (TPC) from agrcultural producers, who also fnance transfers to the budget (TPT) n the form of export taxes, resultng n overall transfers from producers represented by the area ghkl Prce transfers to producers The Market Prce Support (MPS) for a commodty s estmated by addng together transfers to producers from consumers and taxpayers, alternatvely found by multplyng the quantty of producton by the MPD. Adjustments for Prce Leves and Excess Feed Cost net out the contrbuton that producers make to MPS. 91. In calculatng the ndcators, prce transfers to producers are called Market Prce Support (MPS) and are defned as: the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polcy measures that support agrculture by creatng a gap between domestc market prces and border prces of specfc agrcultural commodtes. 92. Before presentng a general formula for estmatng MPS, two new tems need to be explaned. 93. One s the Prce Leves (LV), sometmes termed producton taxes, whch can be mposed on producers as part of market prce support polcy. An example of such a tax s the levy mposed on EU mlk producers when they exceed ther producton quotas. Another example would be leves charged on producers to fnance some of the cost of export subsdsaton. LV s an observed value, whch s obtaned from the nformaton on budgetary expendtures. 94. The second tem s the Excess Feed Cost (EFC), a component accountng for the prce transfers that go from lvestock producers to feed producers as a result of polces whch alter the domestc market prce for feed crops, an mportant nput for the former group. THE PSE MANUAL OECD

52 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 95. The Prce Leves and Excess Feed Cost are accounted for n the MPS n order to exclude from the value of prce transfers to producers contrbutons that producers make to the transfers. At the same tme, the EFC adjustment also elmnates double countng of prce transfers n the aggregaton of MPS across commodtes when dervng a natonal (aggregate) level MPS. 96. Based on the analyss n the prevous secton, a general formula for the calculaton of MPS for commodty s expressed as: MPS TPC TPT LV EFC [4.6] where: TPC TPT LV Transfers to Producers from Consumers of commodty Transfers to Producers from Taxpayers of commodty Prce Leves for commodty EFC Excess Feed Cost for commodty (lvestock commodtes only) 97. EFC s ncluded n the estmaton of MPS for lvestock commodtes only and calculated as: EFC ( MPD QC ) [4.7] where: j EFC j j Excess Feed Cost for lvestock commodty MPD j Market Prce Dfferental for feed crop j QC j Quantty of crop j used as an nput nto the producton of lvestock commodty 98. Note that the quantty of crops used should nclude only domestcally produced feed, so that the total quantty of each feed crop, summed up across all types of lvestock ( QC ) satsfes the j followng condton: QC j QP, where QP j j s the total domestc producton of crop j. Ths condton s mportant n the stuaton when consumpton of a feed crop s partly covered by mports. In ths case t s the quantty of domestc producton ( QP ) of that crop that s used for calculaton of the EFC, and not the total quantty consumed for feed. Ths condton s necessary to ensure that the EFC component of the MPS s calculated on the bass of domestc producton, consstent wth all other MPS components. 99. The EFC adjustment may ncrease or reduce the value of MPS for lvestock dependng on partcular mx of prce affectng polces n place. For example, n a stuaton where both lvestock producton and feed crop producton are supported by polces, resultng n postve MPDs, the EFC adjustment would reduce the MPS value for lvestock. Ths occurs because lvestock producers pay hgher prces for feed crops as a result of prce support for these commodtes. The opposte would be true f polces are n place to decrease the prce of feed, resultng n a negatve MPS for feed crops. In ths case, lvestock producers receve addtonal prce support because they can purchase feed at lower prces. j 50 THE PSE MANUAL OECD 2010

53 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 100. Substtutng from equatons 4.2, 4.4 and 4.5 nto 4.6 yelds equatons 4.8a and 4.8b whch dstngush the mport and export stuatons. Both equatons reduce to the same expresson of transfers to producers. However, the transfers to producers from consumers (TPC) and from taxpayers (TPT) are dentfed separately, and may then be used to calculate other ndcators and to analyse the composton of support. Import Stuaton MPS MPD QP LV EFC [4.8a] In the mport stuaton, TPT s zero. Export Stuaton MPS MPD QC MPD QP QC LV EFC MPD QP LV EFC [4.8b] 101. In calculatng the ndcators, MPS s frst estmated for ndvdual commodtes. These estmates are used to calculate a natonal (aggregate) MPS, whch s a major buldng block for the calculaton of the PSE. The procedure for selectng ndvdual commodtes for whch to calculate MPS, and the method for estmatng the natonal MPS, are provded n secton 6.1, along wth emprcal examples Prce transfers from consumers Prce Transfers from Consumers (PTC) for a commodty are estmated by addng together transfers from consumers to producers and transfers from consumers to other recpents. Alternatvely, ths can be found by multplyng the quantty of consumpton by the MPD. An Excess Feed Cost adjustment nets out the contrbuton that comes from other agrcultural producers rather than from consumers Prce Transfers from Consumers (PTC) are defned as: the annual monetary value of gross transfers from (to) consumers of agrcultural products, measured at the farm gate level, arsng from polcy measures that support agrculture by creatng a gap between domestc market prces and border prces of specfc agrcultural commodtes Agan, based on the analyss n secton 4.1, a general formula for the calculaton of prce transfers from consumers resultng from polces whch affect market prce for commodty can be expressed as: PTC TPC OTC EFC [4.9] where: TPC Transfers to Producers from Consumers of commodty OTC Other Transfers from Consumers of commodty EFC Excess Feed Cost of commodty (crop commodtes only) 104. In ths case, TPC and OTC are gven a negatve sgn because these transfers represent an mplct tax on consumers. Excess Feed Cost (EFC) s a component ntroduced to remove from the estmaton of PTC the value of transfers that come from agrcultural producers rather than from consumers. Ths contrbuton s due to the fact that part of the agrcultural output the crops used n THE PSE MANUAL OECD

54 Chapter 4. Estmatng Polcy Transfers: Prce Transfers anmal feed s purchased by lvestock producers, and not by (non-agrcultural) consumers. The EFC adjustment s only ncluded n the calculaton of PTC for crop commodtes. Ths elmnates doublecountng of prce transfers when aggregatng the PTC across commodtes. The EFC adjustment may affect the PTC value n dfferent ways dependng on the partcular mx of prce polces appled. EFC s calculated as follows: EFC MPD QC [4.10] j j j where: EFC j MPD j QC j Excess Feed Cost n for crop j Market Prce Dfferental for feed crop j quantty of crop j that s consumed n producton of lvestock commodty 105. Substtutng from equatons 4.2 to 4.5 yelds separate calculatons for both the mport and export stuaton (4.11a and 4.11b). Both equatons reduce to the same expresson for calculatng prce transfers from consumers. Agan, the practce s to estmate separate values for the recpent of the transfers from consumers to producers and others, whch are then used for calculatng other ndcators and for analysng the composton of support. Import Stuaton PTC MPD QP MPD QC QP EFC j MPD QC EFC j [4.11a] Export Stuaton PTC MPD QC EFC j [4.11b] In the export stuaton, OTC s zero As n the case of MPS, PTC s estmated for a number of ndvdual commodtes. These estmates are then used to calculate varous commodty-specfc ndcators of support to consumers, as well as to obtan a country s aggregate consumer Sngle Commodty Transfers, whch s also the major buldng block for calculaton of the Consumer Support Estmate. These topcs are covered extensvely n Chapter 7, ncludng numercal examples Market Prce Dfferental (MPD) The MPD measures the extent to whch a set of agrcultural polces affects the market prce of a commodty. Normal practce s to calculate the MPD usng a prce gap whch measures the dfference between the domestc prce and the border prce of a commodty. As an alternatve to the prce gap method, MPD can be derved from the value of export subsdes or based on appled MFN tarff rate. 52 THE PSE MANUAL OECD 2010

55 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 107. As demonstrated n the precedng sectons, a key component n estmatng the value of prce transfers s the MPD whch measures the extent to whch polces affect the market prce of a commodty. An MPD s calculated for a commodty when one or more polces are appled that change the market prce receved by producers of that commodty. When there are no such polces n place, an MPD s not calculated and s assumed to be zero Polces that change the market prce for a commodty nclude, but are not lmted to, the followng lst: Import measures e.g. tarffs, leves, mport quotas, tarff quotas and lcensng requrements. Export measures (a) enhancng exports, e.g. export subsdes, export credts and foregn food ad; (b) lmtng exports, e.g. quanttatve restrctons, lcensng, export bans and export taxes. Domestc prce support measures e.g. producton quotas, admnstered prces and nterventon purchases, ncludng for domestc food ad, publc stockholdng and market wthdrawals The beneft of calculatng the value of prce support transfers through an MPD s that t captures n a sngle measure the combned mpact on market prces of a potentally complete set of prce polces. Polces whch rase the prce receved by producers for a commodty wthout changng the market prce (.e. wthout rasng consumer prces) are ncluded elsewhere wthn the PSE under category A.2 Payments based on output Most commonly, polces affectng market prces are mplemented by governments n order to ncrease the prce receved by producers of a commodty. Ceters parbus, such polces wll lead to a postve MPD. The MPD s nterpreted as a statc measure of the addtonal prce receved by producers resultng from agrcultural polces n a gven year. It s the extra cost pad by consumers and n some cases also by taxpayers, resultng from polces that provde market prce support to agrcultural producton. Alternatvely, as analysed n secton 4.1, some countres may mplement polces that lower market prce for a commodty. Ceters parbus, such polces wll lead to a negatve MPD The common approach to calculate the MPD for a commodty s to measure the dfference between two prces,.e. a domestc market prce n the presence of the polces and a border prce, whether an mport or export prce, representng the opportunty prce (cost) for domestc market partcpants The graphcal analyss presented n secton 4.1smplfed the domestc market down to a sngle level at whch transactons take place. In realty, there are a number of dfferent levels at whch prces can be measured wthn a domestc market: farm gate prces (.e. prces receved by producers), wholesale prces, retal prces, prces at the border, etc.; these reflect, among other thngs, varous stages of processng. Secton 4.5 dscusses how to select and adjust domestc market prces and border prces to calculate the MPD at the farm gate level. Secton 4.6 detals two alternatve procedures, sometmes used to derve an MPD, whch do not rely on the prce gap method. THE PSE MANUAL OECD

56 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 4.5. Calculatng an MPD based on the prce gap method The underlyng prncple s to compare lke wth lke prces, at the farm gate or another level. To do so, adjustments may be needed for both marketng margns (representng the costs of processng, transportaton and handlng) and weght converson (e.g. n crop processng, of lvestock slaughter), and smlar product qualty must be ensured. Varous formulae are used dependng on whether a commodty s mported or exported General approach 113. The underlyng prncple s that support s measured at the farm gate level. Consequently, the task s to obtan an estmate of the prce gap at the farm gate level. The challenge n dong ths s that an agrcultural commodty that s sold by a producer at the farm gate may be very dfferent from the products derved from that commodty whch pass over the border. Ths s partcularly so for lvestock commodtes and commodtes such as sugar, wne grapes and oranges, whch may have a sgnfcant degree of processng nvolved before beng traded at the border, e.g. juces made from frut). In addton, border prces nclude transportaton, handlng and other costs ncurred n brngng the product to the pont of trade (Fgure 4.3). Fgure 4.3. Schematc presentaton of value added chan Producer prces Cereals as-harvested F A R M Lve anmals Beet Mlk At farm-gate Transportaton cost farm gate to wholesale market (T 2 ) Wholesale prces Slos Slaughter house Refnery Dary Ex-factory / Wholesale market Processng cost (S) FOB/CIF prces Cleaned cereals Lve anmals Meat B O R D E R - P O R T Whte sugar Butter/SMP Transportaton cost border to wholesale market (T 1 ) At border Prce gap calculaton usng farm gate prces 114. One method to deal wth ths challenge of comparng lke wth lke s to compare a producer prce,.e. a prce whch s receved at the farm gate level, wth a border prce that has been adjusted to make t comparable wth the farm gate producer prce. Ths nvolves nettng (out,.e. excludng from) the border prce of marketng margns that may be applcable. It also nvolves weght adjustment, so that prces are comparable on a quantty bass, and adjustments for qualty dfferences f relevant. As a result of these adjustments, a border prce measured at the farm gate level 54 THE PSE MANUAL OECD 2010

57 Chapter 4. Estmatng Polcy Transfers: Prce Transfers s obtaned; ths s further referred to as the reference prce. The MPD for a commodty estmated through ths method s expressed as 11 : MPD and : PP RP [4.12] RP ( BP QA MM ) WA [4.13] where: PP producer prce for commodty RP reference prce of commodty (border prce at farm gate) BP border prce of commodty or products derved from commodty QA qualty adjustment co-effcent for commodty MM marketng margn adjustment for commodty WA weght adjustment co-effcent for commodty 115. The producer prce can be the annual average prce receved by all producers of a gven commodty, or a representatve producer prce, perhaps of an average product qualty grade. The choce relates to what suts the best for observng the lke wth lke prncple n comparng wth the border prce chosen. It s not necessarly approprate to compare an average domestc producer prce for a commodty wth a border prce for one specfc product derved from that commodty It should also be noted that, dependng on the character of the prce data used: (a) border prce adjustments n equaton 4.13 may not necessarly be expressed n ths partcular algebrac form; (b) nether adjustment (for marketng margn, weght or qualty) may be necessary; and that (c) makng one adjustment does not necessarly requre the other. Prce gap calculaton usng wholesale prces 117. In some cases, an approach s adopted to estmate the prce gap at a hgher level n the value added chan, e.g. at the wholesale level, by usng wholesale prces nstead of farm gate prces for comparson wth border prces. In ths case, the MPD can be expressed as: MPD where: PP RP WP BP [4.14] WP wholesale prce of commodty 118. Ths approach assumes that the absolute prce gap measured at a hgher level of the processng chan, WP BP, s the same as occurs at the farm gate level, PP RP. In some cases, WP BP t may be more reasonable to assume the equalty of the prce gap n relatve terms,, WP.e. that t s the rate of protecton that s the same at the wholesale and farm gate levels. The latter mples that a proporton of the absolute prce gap measured at the wholesale level s captured at that 11. Note that the MPD expresson n equaton 4.12 s n prncple smlar to that n equaton 4.1; however, n the latter, adjustments of border prce to the farm gate were omtted for smplfcaton. THE PSE MANUAL OECD

58 Chapter 4. Estmatng Polcy Transfers: Prce Transfers level, and that only a part of the measured prce gap s passed back to the farm gate. In ths case, the MPD s expressed as: MPD WP BP PP WP [4.15] 119. It s a matter of judgment as to whch of the two equalty assumptons should be used. In prncple, the more compettve the food chan, the more reason there s to assume the equalty of absolute prce gaps. However, f the structural characterstcs of the food chan are such that t s more approprate to assume that part of the protecton s captured at hgher levels of the food chan, t would be preferable to use the assumpton of the equalty of relatve prce gaps Theoretcally, the method to calculate the MPD usng the farm gate prces s superor to the one based on wholesale prces, because the latter nvolves rather smple assumptons on the transmsson of protecton across the food chan. However, n practcal terms, the choce s usually determned by the nature and avalablty of the prce and marketng margn data, and n some cases t may be more approprate to measure the prce gap at a hgher level of the value chan. Frst, ths wll avod most (or all) of the adjustments of border prce to the farm gate. Both wholesale and border prces, properly selected, represent products at the same value added level. Wholesale markets may be located near the border, and hence the transportaton dfferental between the two markets can then be gnored; a consderable advantage when nformaton on marketng margns s scattered and dffcult to obtan. Therefore, t may be more accurate n some cases to use wholesale prces to estmate the MPD than to adjust the border prce to the farm gate when there s mperfect marketng margn data. Second, the data on farm gate prces s not always avalable or representatve. Ths s the case, for example, of hghly ntegrated ndustres, such as the poultry or sugar ndustres, where consderable quanttes of prmary producton are drected down the food chan wthn one frm and wthout passng through the market. Box 4.1. Settng a negatve prce gap to zero In some cases, an MPD wth the sgn opposte to what would be expected based on the polces n place may be calculated. Ths s the case, for example, when for an exported commodty the domestc prce s below the border prce but no polces export dutes, export restrctons, or admnstratve barrers to nter-regonal movement of goods are appled that would explan the negatve prce gap. Smlarly, when for an mported commodty t may be found that the domestc prce s less than the border prce, but polces whch should ncrease the domestc prce are n place, such as a tarff. In such cases, the MPD s set to zero,.e. PP = RP, on the assumpton that the observed prce gap s due to factors not related to agrcultural polces. Whle settng the negatve MPDs to zero may mprove the accuracy of the estmaton, t may also reduce consstency over tme and between countres, snce postve MPDs may also capture the mpact of non-polcy factors, whle negatve MPDs, when set to zero, do not The followng sub-sectons further develop the calculaton of prce gap. Sub-secton dscusses the selecton of a border prce, whle the last three sub-sectons focus on the key elements of adjustng the border prce to the farm gate: sub-sectons and dscuss, respectvely, the marketng margn and weght adjustments, whle sub-secton addresses the need for qualty adjustments Selectng a border prce 122. A varety of border prces and alternatve methods are used to calculate MPDs for OECD and selected non-oecd countres (Table 4.1). The choce of a border prce for a gven commodty n any country s determned by factors such as market structures, specfcally the net trade poston of 56 THE PSE MANUAL OECD 2010

59 Chapter 4. Estmatng Polcy Transfers: Prce Transfers the commodty concerned, and data avalablty. The net trade stuaton s defned by comparng total domestc consumpton and producton of the commodty. When there s no trade because the commodty, tradable n prncple, s hghly protected, the country s treated as a net mporter. Border prce for an exported commodty 123. If the country s a net exporter of the commodty, the most approprate border prce s an FOB unt value. 12 Very smply: BP FOB [4.16] 124. The FOB value may be ether an annual average of a specfc FOB quotaton prce or the annual average unt value of exports of the commodty (.e. total value of exports dvded by total quantty). An FOB value may correspond to dfferent levels of tarff aggregatons. If so, care needs to be taken to ensure that prces and quanttes relate to a common unt for calculatng an average unt value. It s preferable to choose the tarff lnes for the least transformed products. If trade n these products s small, then more traded tarff lnes may be used As shown n Table 4.1, FOB prces are the man source from whch reference prces are derved for the European Unon, Turkey, Brazl, Chle, Chna and Ukrane. For the EU, both export unt values (e.g. for pgmeat and poultry) and specfc FOB quotaton prces (e.g. the London daly prce for whte sugar from EU ports) are used In the case of a large exporter of a commodty, f exports account for a sgnfcant share of domestc producton and no export subsdy or other export-enhancng measures are appled, the MPD s assumed to be zero. Ths assumpton s made for the majorty of commodtes produced n Australa and New Zealand, and for apples, (table) grapes and oranges n South Afrca. 12. FOB stands for Free on Board. It s the cost of an export good at the ext pont n the exportng country, when t s loaded n the shp or other means of transport n whch t wll be carred to the mportng country. See next footnote for CIF. THE PSE MANUAL OECD

60 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Table 4.1. Border prces and alternatve methods used to derve the MPD by country Country OECD countres Net Exporter Net Importer Net Exporter Net Importer Export prce (FOB) Country's own Traded prce Import prce (CIF) Border Prces Import prce (CIF) Other country Export prce (FOB) Wholesale prce Other prce Producer prce Alternatve Methods Export Subsdy (per tonne) Import tarff Australa MK RI Set equal to PP (MPD s zero) BA, BF, CT, EG, OA, PK, PT, RP, RS, SB, SF, SH, SO, WL, WT Canada MK BF EG, PT MA BA, PK, RS, SB, WT EU-27 BA, BF, EG, MK, OA, PK, PT, RS, WT MA, RI, SH, TO 1 WI FL, PO RP, SF, SB Iceland SH BF, EG, MK, PK, PT WL Japan Korea BA, CC 2, CU 2, GR 2, MK, MN 2, PR 2, RI, RS, SP 2, SW 2, WO 2, WT BA, BF, GA, MK, PP, SB PK AP 2, BF, EG, PT RI PK EG, PT CC SB Mexco TM MK BA, MA, RI, SB, RS, SO, WT BF, BN, CF EG, PK, PT New Zealand EG PT BA, BF, MA, MK, OA, PK, SH, WL, WT Norway SH BA, BF, EG, MK, OA, PK, PT, WT WL Swtzerland BA, MA, MK3, OA, RS, WT SH BF, EG, PK, PT RP Turkey AP, CT, GR, PO, SH, TB, TM MK, WT MA, SF BA, BF, EG, PT, RS Unted States MK RS BF BA, EG, PK, PT, RI, WT 4 SH, WL MA, SB, SO Non-OECD countres Brazl 5 BF, CF6, PK, PT, RS, SB CT 7, MK 7 MA, RI, WT Chle AP, GR, TO, PK, PT WT, MA, RS, BF, MK AP, GR, TM, PK, PT Chna 8 AP, BF, EG, MA, PK, PN, PT, CT, MK, RP, RS, SB, WT RI 9, SH Russa 10 WT, BA, SF RS, BF, MK, PT MA EG, OA, PK, RY South Afrca 11 MA, PN, RS MK BF, PK, PT, SF, SH, WT AP, EG, GR, OR Ukrane BA, BF SF, MA, MK, OA, PT, SF, WT EG, PK, RS 58 THE PSE MANUAL OECD 2010

61 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Notes to Table Whether a CIF or FOB prce s used to derve a reference prce s calculated on a monthly bass dependng on the net trade stuaton. See Box 4.2 for the treatment of seasonal markets. 2. The lower of the average annual CIF value or the producer prce plus tarff. 3. Whle Swss mport prces are used for butter and SMP, the EU FOB export prce s used for four types of cheese. 4. EEP subsdes were last provded n 1998 for BA, 1996 for EG, 1994 for PK, 2001 for PT, and 1995 for RI and WT. 5. For exported commodtes BF, CF, PK, PT, RS and SB, negatve prce gaps are calculated based on actual prces but MPD s set at zero. For mported commodtes MA, RI and WT appled n years for whch negatve prce gaps are calculated, MPD s also set at zero (Box 4.1). 6. Weghted average of Brazlan FOB export prces for Arabca and Robusta coffee. 7. Brazlan mport data are offcally reported on an FOB bass. 8. For exported commodtes AP, BF, EG, PK, PN and PT, negatve prce gaps are calculated based on actual prces, and MPD s set at zero. 9. Weghted average of Tha export prce (FOB) for Indca rce and US export prces (FAS Free Alongsde Vessel) for Japonca-type rce. 10. For mported commodty EG, negatve prce gaps are calculated based on actual prces and MPD s set at zero. 11. For exported commodtes MA and PN, negatve prce gaps are calculated based on actual prces and MPD s set at zero. AP Apples BA Barley BF Beef and veal BN Dred beans CC Chnese cabbage CF Coffee CT Cotton CU Cucumber EG Eggs FL Plants & flowers GA Garlc GR Grapes MA Maze MK Mlk MN Mandarn OG Other grans OR Oranges OA Oats PK Porkmeat PN - Peanuts PO Potatoes PP Red pepper PR Pears PT Poultry RI Rce RP Rapeseed RS Raw sugar RY Rye SB Soybean SF Sunflower SH Sheepmeat SO Sorghum SP Spnach SW Strawberres TB Tobacco TM Tomatoes WI Wne WL Wool WO Welsh onon WT Wheat Source: OECD ndcator database. THE PSE MANUAL OECD

62 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Border prce for an mported commodty 127. If the country s a net mporter of the commodty, and f mports are regular and of a reasonable quantty, then the most approprate border prce s a CIF value for mports nto that country. 13 BP CIF [4.17] 128. Ths can be ether the annual average CIF unt value for mports of the commodty or products derved from the commodty, or an annual average of a specfc CIF quotaton prce. CIF prces are used for the majorty of commodtes n Japan and Korea, and for some commodtes n the EU and Swtzerland As n the export case, t s preferable to choose the tarff lnes for the least transformed products and, f trade n these products s small, more traded tarff lnes are to be used. However, f mports are rregular and/or nsgnfcant n quantty, other sources for prces need to be nvestgated. Smlarly, f mports vary n qualty from one year to the other, or are very dfferent from those produced n the country, the unt value of mports should be avoded Frst, consder f there are other border prces that mght be relevant. It may be approprate to use a CIF prce n another country, partcularly f t s located close by and mports sgnfcant quanttes of the same product. BP CIF other [4.18] where: CIF other annual average CIF unt value for mports n another country 131. As an example of ths method, the EU CIF prce for sheepmeat s used as a proxy for border prce for Iceland, Norway and Swtzerland Alternatvely, f a nearby country s a major exporter of the commodty, then an FOB prce from that source may provde a satsfactory proxy for border prce. In ths case, the nsurance and freght to the country concerned may be added f consdered sgnfcant. BP FOB IF [4.19] other where: FOB other an annual average FOB unt value for exports from another country IF nsurance and freght cost of transportng the product to country concerned 133. For example, EU FOB prces are used to derve border prces for lvestock commodtes for Iceland, Norway, Swtzerland and Turkey. US FOB export prces are used as the bass for calculatng reference prces for a number of commodtes for Mexco. Sugar border prces for Mexco and the US are derved from the FOB prce of sugar from Barbados. 13. CIF stands for Cost, Insurance and Freght. It s the landed cost of an mport good on the dock or other entry pont n the recevng country. It ncludes the cost of nternatonal freght and nsurance and usually also the cost of unloadng onto the dock. It excludes any charge after the mport touches the dock, such as port charges, handlng and storage and agents' fees. It also excludes any domestc tarffs and other taxes or fees, dutes or subsdes mposed by a country-mporter. 60 THE PSE MANUAL OECD 2010

63 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 134. If actual border prces are not avalable or relevant, t may be possble to construct a border prce based on a wholesale prce n another country. For example, border prces for beef n the three North Amercan countres of Canada, Mexco and the US are derved from an Australan wholesale cattle prce. A US wholesale prce for pgs s used to derve a border prce for pgmeat n Japan and Korea. A smlar equaton to 4.19 s used n ths case Fnally, there are certan stuatons where t s approprate to derve a border prce for a commodty from a producer prce for the same commodty n another country: BP FG IF [4.20] other where: FG other farm gate prce from commodty n another country 136. It can be approprate to use ths method when there s sgnfcant transformaton of the commodty from that produced by the farmer to the product traded nternatonally. For example, border prces for wool for Norway and Iceland are derved from the New Zealand producer prce for wool. Ths method was also used pror to 2005 to calculate the MPD for mlk for all countres montored. It can also be the approprate method when the volume of nternatonal trade n the product s severely lmted by santary and phytosantary requrements, as n the case of poultry meat The most approprate border prce may change for a commodty wthn a country over tme. There are prmarly three reasons for ths: (a) data becomes avalable (or unavalable), e.g. mport flows become regular and sgnfcant, resultng perhaps from polcy reform lowerng border protecton; (b) the net trade poston of the commodty changes; or (c) there s a sgnfcant change n the polcy measures affectng the market prce of a commodty. The net trade poston s reassessed every year: f a country has been a net mporter n two of the prevous three years, t s consdered as a net mporter, and vce versa for the net exportng stuaton. Box 4.2. Calculatng MPD for a commodty wth seasonal markets Some crops (e.g. fruts and vegetables) are hghly pershable and seasonal. In prncple, each month could be consdered as a separate market gven that supply s specfc and cannot be transferred to the followng month wthout bearng hgh storage costs and deteroraton of the goods. Polcy nterventons, n partcular mport tarffs, often vary accordng to the month or season. At harvest tme, hgher mport tarffs are usually appled to protect domestc producton, whle lower tarffs are appled n off-season perods. These are often referred to as seasonal tarffs. At the same tme, market wthdrawals may occur durng the harvestng perod. In these cases, the annual average MPD s estmated by weghtng seasonal MPDs,.e. the dfference between producer and reference prces for each season (or month) wthn a year, by the seasonal (monthly) quantty of marketed producton. When the data are not avalable, the exstng pattern of domestc marketed producton or consumpton may be estmated. Statstcs on nternatonal trade are currently avalable on a monthly bass. Consequently, f the seasonal pattern of domestc marketed producton can be estmated wth a suffcent degree of relablty, domestc avalablty for use can be estmated (or vce versa f the pattern of domestc consumpton s easer to estmate). When no estmaton of seasonal producton and consumpton s possble, an annual MPD may be calculated by weghtng seasonal MPDs by the number of days each tarff remans n force. Ths method s used to calculate the MPD for tomatoes n the European Unon. A MPD s estmated for each month as the dfference between the unt value of ntra-eu trade (the domestc prce) and the unt value of extra-eu trade (the border prce). Monthly MPDs are then averaged usng the seasonal pattern of producton,.e. the share of monthly producton n total annual producton. THE PSE MANUAL OECD

64 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Marketng margn adjustment 138. To be correctly compared wth the farm gate prce, the border prce must be made equvalent to the farm gate prce,.e. t must be adjusted for marketng margns, whch nclude the costs of processng, transportaton and handlng of a product ncurred between the farm gate and the border Processng costs relate to the physcal transformaton of prmary farm products nto marketable ones. Agrcultural products often undergo a certan degree of transformaton before they are traded: grans are cleaned, dred, or husked; sugar beet s processed nto sugar; and anmals are slaughtered, cut and packed. The costs of these operatons should be netted from the border prce Transportaton and handlng costs relate to the spatal movement of products and represent another source of value added beyond the farm gate. The way n whch the border prce s adjusted for transportaton costs depends on whether the product s mported or exported (Fgure 4.3). In the case of mports, the frst step s to add to the CIF prce the costs of transportng the product from the border to the nternal wholesale market (T 1 ). Ths s necessary n order to account for the full cost of an mport at the domestc market level. The second step s to subtract from ths prce the cost of transportng the product from the wholesale market to the farm gate (T 2 ). Ths s necessary to express the prce of an mport n farm gate equvalent terms. The marketng margn adjustment to the CIF prce, whch also takes nto account processng costs, s thus expressed as: * CIF CIF T T S [4.21] where * CIF T 1 T 2 S CIF prce of mported product adjusted to the farm gate (reference prce) handlng and transportaton costs between border and domestc wholesale market handlng and transportaton costs between wholesale market and the farm gate costs of processng farm product nto mported product 142. In the case of exports, an FOB prce s adjusted only downwards to the farm gate so as to exclude all nternal costs ncurred between the farm gate and the border. The marketng margn adjustment n the case of an export s expressed as follows: * FOB FOB T T S [4.22] where * FOB FOB prce of exported product adjusted to the farm gate (reference prce) T 1 T 2 S handlng and transportaton costs between border and domestc wholesale market handlng and transportaton costs between wholesale market and the farm gate costs of processng of farm product nto exported product 144. All cost elements of the margn adjustment should be those of the country concerned (whether an mporter or exporter) and not the costs reflectng the market structures of another country. 62 THE PSE MANUAL OECD 2010

65 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 145. There can be dffcultes n obtanng relable or regular data on marketng costs, and these dffcultes may justfy some smplfcatons. A standard smplfcaton relates to adjustments of the CIF prce for mported commodtes. As can be seen from equaton 4.21, one element of the transportaton costs (T 1 ) ncreases the reference prce, whle another (T 2 ) reduces t. Ths allows for the assumpton that these costs offset each other, a smplfcaton whch s actually appled n the majorty of cases where CIF prces are used. Adjustment for processng costs can be mnmsed (or omtted) by selectng external prces for products that are mnmally transformed Weght adjustment 146. As farm products undergo physcal treatment before they are traded, more than one unt of weght of a farm gate product s typcally requred to obtan one unt of weght of a traded product. For example, one tonne of boneless beef requres the processng of approxmately 1.9 tonnes of lve anmal, or vce versa, one tonne of lve anmal yelds only 0.53 tonnes of boneless beef. Hence, border and farm gate prces may not be drectly comparable, n the sense that they reflect dfferent quanttes of a farm gate product (or alternatvely, they reflect dfferent quanttes of a traded product). For comparsons to be accurate, the two prces need to be expressed on the same weght bass,.e. n terms of ether the farm gate commodty or the traded product. Ths s acheved by adjustng for weght ether the producer prce or the border prce. Both methods yeld the same prce gap result. Usng equaton 4.13 (where other adjustment are omtted for smplcty), the alternatve for the weght adjustment s as follows: Opton 1: Expressng producer prce n boneless beef weght equvalent: PP bl PPbb [4.23] WAbb Opton 2: Expressng reference prce n lve anmal weght equvalent: RP bl ( BP MM ) WA [4.24] bb bb bb where: PP bb producer prce for beef n boneless beef weght equvalent PP bl producer prce for beef n lve anmal weght equvalent WA bb weght adjustment co-effcent (tonnes of boneless beef obtaned from one tonne of lve anmal) BP bb border prce of boneless beef RP bl reference prce of boneless beef n lve anmal weght equvalent MM bb marketng margn adjustment to border prce of boneless beef 147. The algebrac procedure of the weght adjustment may not always be such as wrtten n equatons 4.23 and It s determned by how the weght adjustment coeffcent (WA) s expressed. For example f WA s expressed n tonnes of lve anmal requred to obtan one tonne of boneless beef (1.9 tonnes),.e. f t represents a recprocal of WA bb as defned above, the procedure would be to THE PSE MANUAL OECD

66 Chapter 4. Estmatng Polcy Transfers: Prce Transfers multply the producer prce by WA n equaton 4.23 and to dvde the border prce (wth margn adjustment) by WA n equaton It s also mportant to ensure that all quantty varables used n calculatons (e.g. quanttes of producton and consumpton) are expressed n the same weght equvalent as that appled for prces Qualty adjustment 149. The domestc market and border prces used to estmate the MPD should represent commodtes/products of smlar qualty. Qualty relates to such product attrbutes as sze, colour, mosture level, proten, fat or ol content, degree of mpurtes, bacteral polluton, etc. Among other factors, these determne commodty prces and cause prce dfferentals, whch may emerge ndependently of prce polces. The measured MPD should be free from the nose due to qualty dfferences, so that the border prce s comparable wth the domestc prce n terms of product qualty A qualty dfferental should not be confused wth prce dfferences that reflect the degree of processng that the commodty has undergone. For example, prces for meat can be expressed n terms of carcass meat, meat wth bone, or boneless meat. Each of the three prces represents three dfferent stages of processng, and the correspondng prce dfferentals are due to the value added at each stage and to the physcal transformaton of product, although each prce may represent meat obtaned from the same anmal and therefore reflectng the same product qualty For the majorty of MPD estmates, no qualty adjustment s made, ndcatng that t s generally assumed that the qualty composton of domestc and traded commodtes/products s reasonably comparable. However, there are a few cases (summarsed n Table 4.2) when specfc adjustments to the border prce are made to brng t closer to the domestc producer prce n terms of some specfc qualty characterstc. The way n whch the adjustment s carred out largely depends on the type of qualty characterstcs affectng the prce levels and data avalablty Example 1: MPD based on weghted average for dfferent market segments. An MPD s estmated for the varous market segments, and an average MPD s calculated by weghtng each segment MPD by the share of that segment n domestc producton. Ths method can only be used when both domestc and border prces can be dentfed for products of dfferent segments Ths method, for example, s used to estmate the MPD for beef and veal n Swtzerland where veal represents about 40% of the total value of beef and veal producton. The MPD for beef and veal s the weghted average of the MPDs estmated ndvdually for veal and beef: where MPD VP VP V B BF MPDV MPDB [4.25] VPBF VPBF MPD weghted average MPD for beef and veal BF MPD V MPD B VP V VP B MPD based on prces for veal MPD based on prces for beef (cows, bulls, steers and hefers) value of veal producton value of beef producton (cows, bulls, steers and hefers) VP total value of beef and veal producton BF 64 THE PSE MANUAL OECD 2010

67 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 154. When the average qualty of commodtes produced domestcally s very dfferent from the qualty of commodtes avalable at the border, there are two possble optons to compare lke wth lke Example 2: applyng a qualty adjustment coeffcent to the border prce to brng t to a comparable level of qualty wth the domestc prce. Ths method s used to estmate the MPD of wheat for Ukrane, whch s a net exporter of wheat. The MPD s estmated based on a dfferental between the Ukranan average domestc and export prces of wheat. Feed wheat typcally accounts for the majorty share of Ukranan exports, whle domestc producton s relatvely evenly dstrbuted between mllng and feed qualty wheat. In order to elmnate the mpact of such qualty asymmetry on the levels of average domestc and export prces and therefore on the measured MPD, the reference prce s adjusted as follows: BP * WT BP WT QA [4.26] * BPWT and QA [4.27] BP WT where * BP border prce wth qualty adjustment WT BP border prce before qualty adjustment WT QA qualty adjustment coeffcent 156. The qualty adjustment coeffcent (QA) n equaton 4.27 can be derved as follows: () express the domestc producer prce of wheat (PP WT ) as a weghted average of domestc producer prces for feed (PP feed ) and mllng (PP mll ) wheat wth weghts a and b respectvely beng the quantty shares of each wheat type n total domestc producton: PP WT a PP [4.28a] feed b PP mll () express the border prce of wheat (BP WT ) as a weghted average of border prces for feed (BP feed ) and mllng (BP mll ) wheat, wth weghts c and d respectvely beng the quantty shares of each wheat type n country s total exports: BP WT c BP feed d BP mll [4.28b] () express BP mll through BP feed, assumng P to be a qualty prce dfferental between the two prces: BP ( 1 P) [4.28c] mll BP feed (v) express BP WT through BP feed usng [4.28c]: BP WT cbp d ( 1 P) BP BP ( c d (1 P)) [4.28d] feed feed feed (v) assume the adjusted border prce of wheat ( BP * WT ) to be a weghted average of border prces for feed (BP feed ) and mllng (BP mll ), wth weghts beng shares of feed and mllng THE PSE MANUAL OECD

68 Chapter 4. Estmatng Polcy Transfers: Prce Transfers wheat n domestc producton a and b and express wheat usng [4.28d]: BP * WT * BPWT n terms of border prce of feed a BP b(1 P) BP BP ( a b(1 P)) [4.28e] feed feed (v) obtan QA usng [4.27], [4.28d] and [4.28e] * BPWT a b(1 P) QA [4.28f] BP c d (1 P) WT 157. As s seen from equaton 4.28e, the key assumpton used for ths method s that the adjusted border prce s a weghted average of border prces for feed and mllng wheat wth weghts correspondng to quantty shares of these two types of wheat n domestc producton. Another assumpton s that the qualty premum for mllng wheat ( P) s the same for both domestcally marketed and exported gran. Calculaton of the qualty adjustment coeffcent requres nformaton on the composton of domestc producton and exports n terms of quanttes of feed and mllng wheat (coeffcents a, b, c, and d) and the qualty prce dfferental between mllng and feed wheat ( P). It s possble to apply ths method to any other commodty and to adapt the formula to nclude any number of qualty grades, f relevant Example 3: usng weghted average of border prces for specfc qualty grades. Brazl s a net exporter of coffee. A hgher-prced Arabca coffee accounts for around 90% of Brazlan exports and a lower-prced Robusta coffee for the remanng 10%. The shares of these two groups n domestc producton are around 75% and 25% respectvely. The dfference n the qualty composton of domestc producton and exports s tackled by constructng a weghted average reference prce, as follows: BP QP QP A R CF FOB A FOB R [4.29] QPCF QPCF feed where: BP CF weghted average border prce of coffee FOB A export prce of Arabca coffee FOB R export prce of Robusta coffee QP A QP R quantty of Arabca coffee produced quantty of Robusta coffee produced QP CF total quantty of coffee produced 159. The border prce n equaton 4.29 represents a weghted average of the Robusta and Arabca export prces, wth weghts correspondng to the shares of these two groups n domestc producton. As n the prevous example, ths s a key assumpton for harmonzng qualty composton of border and domestc prces. Ths method s also used to derve Chna s mport prce for rce, whch represents a weghted average of Japonca and Indca-type rce. Ths method, therefore, can be used both for exported and mported products, but requres the exstence of nternatonal trade prces for products of specfc qualty grades. 66 THE PSE MANUAL OECD 2010

69 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Country Table 4.2. Methods used for adjustng prces for qualty dfference Weghted average MPD for dfferent market segments Wth qualty adjustment co-effcent Adjusted border prce Weghted average of border prces for specfc qualty grades Canada BF - - US BF - - Norway - PT - Swtzerland BF - - Brazl - - CF Chna - - RI, WT Ukrane - BA, WT, MA Alternatve methods for calculatng an MPD Instead of usng a prce gap to calculate a MPD, export subsdy or mport tarff rates may be used, after adjustment and/or weghtng to ensure comparablty Two methods alternatve to comparng domestc and border prces, are sometmes used to estmate an MPD for a commodty In a net export stuaton, f the country has sgnfcant levels of exports of a commodty and uses export subsdes to brdge the gap between domestc and world prces, the level of export subsdy per tonne of exports s assumed to represent the MPD. In ths case, the MPD can be expressed as: XS MPD [4.30] QX where: XS value of export subsdes for commodty or products derved from QX level of exports of the commodty for the annual perod 162. Ths method s used to calculate the MPD of several commodtes (barley, eggs, pgmeat, poultry, rce and wheat) for the Unted States, where the value of export subsdes s derved from expendtures by commodty on the Export Enhancement Programme (EEP). The same approach s also appled n the case of wne for the European Unon Compared to the general method of estmatng a prce gap, the approach that nvolves usng a unt export subsdy may lead to some underestmaton f addtonal export competton nstruments such as export credts are used. The effects may also fal to be pcked up n cases where they consttute the only nterventon, f no prce gap measurement s undertaken or possble The alternatve method n the case of a net mport stuaton s to derve the MPD drectly from tarffs. Ths method s not a preferred opton f other MPS polces such as tarff quotas, lcensng or state-tradng enterprses be n place, because t does not capture the extent to whch these polces THE PSE MANUAL OECD

70 Chapter 4. Estmatng Polcy Transfers: Prce Transfers change domestc market prces. However, t can be used even when other polces exst f prce data s unavalable or unrelable and t s beleved that dervng an MPD by ths method results n a more accurate estmate of MPS for the commodty. The MPD can be expressed as ether: MPD tr PP 1 tr where: tr average ad valorem tarff applyng to commodty or [4.31] MPD TR [4.32] where: TR average specfc tarff applyng to commodty 165. The most approprate tarffs to use are the statutory appled MFN tarffs that would pertan to mports: statutory rather than collected tarff revenue, snce the latter gnores prohbtve tarffs that do not yeld any revenues; appled rather than WTO bound tarffs, snce they are the tarffs effectvely protectng the market and can be sgnfcantly dfferent from bound levels; and MFN rather than preferental tarffs, snce they represent the protecton level mposed on margnal mports Commodtes are traded at varous degrees of processng and packagng that correspond to dfferent tarff lnes whch may have sgnfcantly dfferent tarff rates. In addton, for some commodtes that have a lmted shelf lfe, tarffs can vary by season (Box 4.2). Consequently, there are two major steps that must be carred out n order to calculate an average tarff for a commodty The frst step s to ensure that the tarffs applyng to mports of the commodty are expressed n the same form. Statutory tarff rates can be ad valorem or specfc. Sometmes they are a mxture of both. To average several tarff lnes, all tarffs have to be converted to ether an ad valorem equvalent or a specfc equvalent. The approprate border prces to use for tarff converson should be those correspondng to the specfc tarff lnes. But f the nformaton s not avalable, e.g. f no trade occurs because the tarff s prohbtve, an alternatve prce has to be used, for example, another ndcator of the world prce of the same product, the border prce of a close tarff lne or the border prce of the commodty tself converted to the approprate processng equvalent The fnal step s to apply an approprate weghtng to the tarffs. If sgnfcant flows of trade occur for all tarff lnes, tarffs can be weghted by mport volumes, ensurng that volumes have been converted to the same product weght. If there are no mports for some tarff lnes, for example because of prohbtve tarffs, another weghtng system has to be used, usually a smple average Work examples 169. As the precedng sectons of ths chapter show, the calculaton of a MPD s an essental task n the estmaton of market prce support transfers. It requres a thorough understandng of how the polcy works, knowledge of the relevant agrcultural commodty markets, ncludng trade flows, access to sources of domestc and trade data, and great care to ensure that the correct prce comparsons and the requred adjustments are made. The followng tables provde llustratve examples of how a MPD s calculated, based on the methods outlned n secton 4.5. The examples relate to key agrcultural commodtes, such as grans (wheat), sugar, and meat (beef), whle Annex 4.1 deals specfcally wth the calculaton of the mplct reference prce and the MPD for mlk. 68 THE PSE MANUAL OECD 2010

71 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 170. It should be emphassed that, whle the arthmetc process for calculatng a MPD vares between the examples, the underlyng prncple s always the same,.e. to ensure the comparson of lke wth lke Table 4.3 provdes an example of how a MPD may be calculated for wheat based upon specfc polcy nterventons, market characterstcs and data avalablty. In ths example, only mllng wheat s produced n the country. Ths could be the case, for example, due to certan cultvaton tradtons and/or government polces where protecton s provded to mllng wheat through an mport tarff, whle feed wheat enters the domestc market duty-free. Consequently, the dfference between producton and consumpton of food wheat s zero. Whle the country s a net mporter, mportng some tonnes of feed wheat, t would not be correct to base the reference prce on these mports because of the dfference n qualty between the two types of wheat. Table 4.3 WHEAT: Calculaton of a MPD for a net mporter Reference prce based on other country s mport prce and marketng margn adjustment Symbol Descrpton Unts Value Source / equaton QP Producton 000 T 100 Data of whch for feed 000 T 0 Data VP Value of producton LC mllon 35 Data PP Producer Prce LC/T 350 Data or (VP / QP) * 1000 QC Consumpton 000 T 120 Data Consumpton for feed 000 T 20 BP Border Prce LC/T 300 CIF other CIF other CIF prce at neghbour LC/T 300 Data MM Marketng Margn LC/T 20 S, wth T 1 = T 2 S Processng costs (cleanng and dryng) LC/T 20 Data RP Reference Prce LC/T 280 BP - MM MPD Market Prce Dfferental LC/T 70 PP - RP 172. As there are no mports of mllng wheat nto the country, an approprate border prce needs to be found from nformaton other than the country s own trade. In ths example, a close neghbour country s a major mporter of mllng wheat. The average CIF prce of wheat mports for mllng n the neghbour provdes a sutable proxy for a border prce of wheat n the example country (equaton 4.18). Domestc processng costs are then subtracted from the border prce to obtan a reference prce that s comparable to the producer prce (equaton 4.13). Gven the geographc characterstcs of the country s market, an assumpton s made that the handlng and transportaton costs between wholesale market and border (T 1 ) and nternal handlng and transportaton costs between farm gate and wholesale market (T 2 ) offset each other. These costs are therefore not explctly consdered n the estmaton of the marketng margn. The reference prce s then subtracted from the producer prce to obtan a MPD (equaton 4.12) Table 4.4 provdes an example of how a reference prce could be calculated when wheat s produced for both mllng and feed uses wthn a country. In ths example, wheat producton s splt 50/50 between mllng and feed wheat, wth tarff protecton and export subsdes used to support wheat producers. The country s a net exporter of wheat, exportng one half of ts total wheat producton, and 80% of exports comprse wheat for feed use. THE PSE MANUAL OECD

72 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Table 4.4 WHEAT: calculaton of a MPD for a net exporter Reference prce based on country s own export prce, qualty and marketng margn adjustments Symbol Descrpton Unts Mllng wheat (mll) Feed wheat (feed) Total Wheat (WT) Source / equaton QP Producton 000 T Data, where QP WT = QP mll + QP feed VP Value of producton LC mllon Data, where VP WT = VP mll + VP feed PP Producer Prce LC/T Data or (VP / QP) * 1000 QC Consumpton 000 T Data, where QC WT = QC mll + QC feed BP Border Prce LC/T Data or (VX / QX) * 1000 VX Value of exports LC mllon Data, where VX WT = VX mll + VX feed QX Quantty of exports 000 T Data, where QX WT = QX mll + QX feed QA Qualty adjustment rato (a + b * (1 + P)) / (c + d * (1 + P)) a share of feed wheat n total producton rato Data b share of mllng wheat n total producton rato Data c share of feed wheat n total wheat exports rato Data d share of mllng wheat n total wheat exports rato Data P qualty prce dfferental between mllng and feed wheat rato Data MM Marketng Margn LC/T T 1 + T 2 + S S Processng costs (cleanng and dryng) LC/T Data T 1 Handlng and transportaton wholesale/border LC/T Data T 2 Handlng and transportaton farm/wholesale LC/T Data RP Reference Prce LC/T (BP * QA) - MM MPD Market Prce Dfferental LC/T PP - RP Comparson: RP based on average wheat export prce RP Reference Prce LC/T BP - MM MPD Market Prce Dfferental LC/T PP - RP 70 THE PSE MANUAL OECD 2010

73 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 174. In ths case, the average export prce of wheat s not comparable to the average producer prce because the product composton (n terms of mllng and feed wheat) vares sgnfcantly. A qualty adjustment to the border prce s therefore requred. The avalable nformaton allows a qualty adjustment as expressed n equatons 4.26 and 4.27 to be made. From the adjusted border prce (BP*QA), a marketng margn s deducted, ncludng processng costs and all nternal handlng and transportaton costs (between farm and wholesale market and between wholesale market and border). In the example shown, ths results n a reference prce that s hgher and a MPD that s lower than wth the average border prce wthout qualty adjustment. However, f mllng wheat domnated exports, the opposte would be the case In the case of wheat, a consderable amount of trade takes place n product that has undergone only mnor processng, so that no weght adjustment s needed. For other products, such as sugar and beef, trade manly occurs n more hghly processed forms. In these cases, the calculaton of a MPD requres not only a marketng margn adjustment but also an approprate weght adjustment between the farm and traded products Table 4.5 provdes an example of how a MPD could be calculated for sugar under specfc polcy and market characterstcs, and data avalablty. In the example, farmers produce 2 mllon tonnes of raw sugar cane, whch s transformed nto tonnes of refned sugar. In order to determne whether the country s a net mporter or exporter, the country s total producton and consumpton of sugar are compared. The quantty consumed should account for all forms of sugar consumpton (ncludng n processed foods, such as confectonery). Ths nformaton s typcally obtaned from the country s producton, supply and utlsaton balance sheet for sugar: ths aggregates consumpton of sugar n all forms and expresses these quanttes n common physcal terms, e.g. n refned sugar equvalent Calculaton begns by expressng domestc producton of sugar cane n refned sugar equvalent. Ths s done by multplyng the quantty of sugar cane produced by the extracton rate of refned sugar from sugar cane (0.15). Domestc producton of sugar cane can now be compared wth total consumpton, also expressed n refned sugar equvalent. As can be seen from Table 4.5, the country s sugar consumpton exceeds domestc producton, wth mports representng 33% of domestc consumpton The average CIF value of refned sugar mports s the approprate border prce, from whch processng costs are deducted (assumng agan n ths case of a net mporter that the two transport components from wholesale to border and farm to wholesale offset each other). However, ths prce s a refned sugar prce, whle the producer prce s n raw cane terms. Producer prce may be expressed n refned sugar equvalent n two ways, and dependng on the data avalable. If the prce avalable s for raw cane sugar (PP cane ), t can be dvded by the extracton rate of refned sugar from sugar cane (WA) (equaton 4.23). In the example the WA corresponds to the unts of refned sugar obtaned from one unt of raw sugar cane (.e. a rato of 0.15 ndcates that one tonne of raw sugar cane yelds 0.15 tonnes of refned sugar). If only the total value of sugar cane producton s avalable (VP), t can be dvded by the quantty of sugar cane expressed n refned sugar equvalent (QP refned ). As can be seen from Table 4.5, both optons yeld the same producer prce n refned sugar equvalent. Ths prce s comparable to the reference prce, and s used to calculate the MPD The prevous examples have all been based on calculatons that nvolve adjustng a border prce nto farm gate values, requrng n partcular a marketng margn adjustment (equaton 4.13). Because of commercal senstvty or lack of consstent and systematc estmates, ths nformaton s not always readly avalable. Table 4.6 provdes an example of a prce gap calculaton based on wholesale prces, whch does not rely on marketng margn nformaton (equatons 4.14 and 4.15). THE PSE MANUAL OECD

74 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 180. In the followng example, 1.5 mllon tonnes of sugar beet are transformed nto tonnes of refned sugar. Almost all domestc consumpton of refned sugar s derved from domestc producton, wth very lttle mports. It s therefore more approprate to derve a border prce from an alternatve source. The example uses an average FOB export prce from a major exporter as a startng pont, wth adjustments made for the cost of nsurance and freght from the exportng country to the country n queston (equaton 4.19). Ths s essentally a derved CIF prce, whch s then subtracted from the domestc wholesale prce for refned sugar to obtan a MPD at the wholesale level There are two ways n whch ths prce gap can be translated back to the farm gate level. The frst assumes that the absolute prce gap at the wholesale level s the same as at the farm gate level (Opton 1), whch results n a MPD of LC The second assumes that the prce gap between the wholesale and farm gate level s the same n relatve terms (Opton 2). In the example, ths results n a MPD of LC 63. It also results n a MPD that s lower than the frst calculaton, as t always wll do. The dfference between the MPDs derved from the two optons ncreases as the relatve prce gap between the wholesale prce and the border prce ncreases. The choce between the two optons should be made n terms of whch one best reflects the market structure of the value chan n the country and therefore requres some knowledge of the stuaton In comparson wth the prevous examples, ths method does not requre marketng margn data but t does requre wholesale prce nformaton. Weght and qualty adjustments may also be requred dependng on the commodty beng examned Table 4.7 provdes another example of dervng a farm gate level MPD from a wholesale prce gap, n ths case for beef. The country s a net mporter of beef, wth total beef mports representng one-quarter (25%) of consumpton. Ths allows the use of average mport values as the bass for calculatng a border prce. However, an mportant characterstc of ths market s that domestc producton s made up entrely of gran-fed beef, whle mports consst of both gran-fed and grass-fed beef. The latter s consdered as of lower qualty than gran-fed beef and s beng avalable at a lower prce. 72 THE PSE MANUAL OECD 2010

75 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Table 4.5. SUGAR: Calculaton of a MPD for a net mporter Reference prce based on country s own mport prce, weght and marketng margn adjustments Symbol Descrpton Unts Value Source / equaton QP cane Producton (raw cane) 000 T 2000 Data WA Weght Adjustment (refned sugar extracton rate) rato 0.15 Data, where WA = QP refned / QP cane QP refned Producton (refned sugar equvalent) 000 T 300 QP cane * WA PP cane Producer Prce (raw cane) LC/T 75 Data VP Value of sugar cane producton LC mllon 150 Data PP refned (1) Producer Prce (refned sugar equvalent): opton 1 LC/T 500 PP cane / WA or PP refned (2) Producer Prce (refned sugar equvalent): opton 2 LC/T 500 (VP / QP refned ) * 1000 QC refned Consumpton (refned sugar equvalent) 000 T 450 Data BP refned Border Prce (refned sugar) LC/T 400 (VM refned / QM refned ) * 1000 VM refned Value of mports (refned sugar) LC mllon 60 Data QM refned Quantty of mports (refned sugar) 000 T 150 Data MM refned Marketng Margns (refned sugar) LC/T 200 S, wth T 1 = T 2 S refned Processng costs (refned sugar) LC/T 200 Data RP refned Reference Prce (refned sugar equvalent) LC/T 200 BP refned - MM MPD refned Market Prce Dfferental (refned sugar equvalent) LC/T 300 PP refned - RP refned THE PSE MANUAL OECD

76 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Table 4.6. SUGAR: Calculaton of a MPD for a net mporter Reference prce based on other country s export prce (a derved mport prce) and prce gap based on wholesale prce Symbol Descrpton Unts Value Source/equaton QP beet Producton of beet (raw beet) 000 T 1500 Data WA Weght Adjustment (refned sugar extracton rate from beet) rato 0.10 Data, where WA = QP refned / QP raw beet QP refned Producton of beet (refned sugar equvalent) 000 T 150 QP beet * WA PP beet Producer prce (raw beet) LC/T 15 Data VP Value of sugar beet producton LC mllon 23 Data PP refned (1) Producer Prce (refned sugar equvalent): opton 1 LC/T 150 PP beet / WA or PP refned (2) Producer Prce (refned sugar equvalent): opton 2 LC/T 150 (VP / QP refned ) * 1000 QC refned Consumpton (refned sugar equvalent) 000 T 152 Data QM refned Quantty of mports (refned sugar) 000 T 2 QC refned - QP refned WP refned Wholesale Prce (refned sugar) LC/T 300 Data BP refned Border Prce (refned sugar) LC/T 175 FOB other + IF FOB other Export prce of major exporter (refned sugar) LC/T 150 Data IF Freght from exportng country LC/T 25 Data Opton 1: Assumng a constant absolute prce gap MPD refned Market Prce Dfferental (refned sugar equvalent) LC/T 125 WP refned - BP refned Opton 2: Assumng a constant relatve prce gap MPD refned Market Prce Dfferental (refned sugar equvalent) LC/T 63 PP refned * (1 - BP refned / WP refned ) 74 THE PSE MANUAL OECD 2010

77 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Table 4.7 BEEF: Calculaton of a MPD for a net mporter Reference prce based on country s own mport prce, weght and qualty adjustments and prce gap based on wholesale prce Symbol Descrpton Unts Value Source / equaton QP lw Producton (lve weght) 000 T 100 Data Producton of beef 000 T 98 Data Producton of veal 000 T 2 Data WA Weght Adjustment (rato of carcass to lve weght) rato 0,60 Data, where WA = QP cw / QP lw QP cw Producton (carcass weght) 000 T 60 Data or QP lw * WA PP lw Producer Prce (lve weght) LC/T 2400 Data VP Value of producton LC mllon 400 Data PP cw (1) Producer Prce (carcass weght): opton 1 LC/T 4000 Data or (VP / QP cw ) * 1000 PP cw (2) Producer Prce (carcass weght): opton 2 LC/T 4000 Data or PP lw / WA QC cw Consumpton (carcass weght) 000 T 80 Data QM cw Quantty of mports (carcass weght) 000 T 20 QC cw - QP cw WP cw Wholesale Prce (carcass weght) LC/T 5000 Data Comparson: Calculaton of a MPD based on border prce for gran fed beef only BP cw Border prce (carcass weght) LC/T 4667 ( VM cw / QM cw ) * 1000 VM cw Value of mports (carcass weght) LC mllon 70 Data QM cw Quantty of mports (carcass weght) 000 T 15 Data Opton 1: Assumng a constant absolute prce gap MPD Market Prce Dfferental LC/T 333 WP cw - BP cw Opton 2: Assumng a constant relatve prce gap MPD Market Prce Dfferental LC/T 267 PP cw * (1 - BP cw / WP cw ) Comparson: Calculaton of a MPD based on border prce of all beef mports BP cw Border prce (carcass weght) LC/T 3500 (VM cw / QM cw ) * 1000 VM cw Value of mports (carcass weght) LC mllon 70 Data QM cw Quantty of mports (carcass weght) 000 T 20 Data Opton 1: Assumng a constant absolute prce gap MPD Market Prce Dfferental LC/T 1500 WP cw - BP cw Opton 2: Assumng a constant relatve prce gap MPD Market Prce Dfferental LC/T 1200 PP cw * (1 - BP cw / WP cw ) THE PSE MANUAL OECD

78 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 185. The table shows the results of usng the wholesale prce gaps to estmate the farm gate prce gaps under absolute and relatve prce gap assumptons. These two optons are n turn consdered usng the reference prce based on total beef mports and that based on gran-fed beef mports only. Granfed mports may be dentfed n terms of specfc tarff lnes, or n terms of geographc orgn of mports. The example agan demonstrates that the assumpton of a constant relatve prce gap results n a lower MPD than the assumpton of a constant absolute prce gap. It also shows that the MPD s lower when only gran-fed mports are used, reflectng the hgher prce of ths product n comparson to gran-fed beef. In ths sense, a qualty adjustment occurs not n terms of a partcular formula but n terms of data selecton A fnal example s provded n Table 4.8, demonstratng all the possble adjustments that can be made n terms of marketng margns, weght and qualty. In comparson to the prevous example, an mportant characterstc of the beef market n ths example s the relatvely sgnfcant contrbuton of veal to total beef and veal producton The country s a net exporter of beef, so that an average FOB prce can be used to calculate a border prce. However, there s a sgnfcant dfference between the product composton of exports (domnated by veal) and the composton of farm producton (domnated by beef), smlar to that consdered n the frst example for wheat (Table 4.3). Consequently, the average export prce s not comparable wth the domestc producer prce Data regardng processng and transportaton costs are needed to allow the marketng margns to be calculated. Along wth the weght adjustment, they also ndcate further dfferences between beef and veal producton that could be recognsed n the calculaton of a MPD It s approprate to calculate separate reference prces for beef and veal by subtractng ther own marketng margns from ther respectve average export prces and applyng ther respectve weght adjustments, followng equaton A reference prce for beef and veal s then obtaned by weghtng the separate reference prces for beef and veal by the shares of producton. In the example, ths amounts to a reference prce of n local currency unts and a MPD of n local currency unts For comparson, Table 4.8 also shows the result of usng the smple total beef and veal averages to derve a reference prce and MPD that do not account for the dfferences between export and producton composton. The result s a MPD that s lower than that wth the qualty-adjusted reference prce, reflectng the greater proporton of the hgher-prced veal n exports than n producton. 76 THE PSE MANUAL OECD 2010

79 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Table 4.8 BEEF: Calculaton of a MPD for a net exporter Reference prce based on country s own export prce, weght, qualty and marketng margn adjustments Symbol Descrpton Unts Beef (B) Veal (V) Beef & veal (BF) Source / equaton QP lw Producton (lve weght) 000 T Data, where QP lw(bf) = QP lw(b) + QP lw(v) WA Weght Adjustment (rato of carcass to lveweght) rato Data, where WA = QP cw / QP lw QP cw Producton (carcass weght) 000 T QP lw * WA PP lw Producer Prce (lve weght) LC/T Data VP BF Value of producton LC mllon Data, where VP BF = VP B + VP V PP cw (1) Producer Prce (carcass weght): opton 1 LC/T Data or (VP / QP cw ) * 1000 PP cw (2) Producer Prce (carcass weght): opton 2 LC/T Data or PP lw / WA QC cw Consumpton (carcass weght) 000 T Data, where QC cw(bf) = QC cw(b) + QC cw(v) BP cw Border Prce (carcass weght) LC/T Data or VX cw / QX cw * 1000 VX cw Value of exports (carcass weght) LC mllon Data, where VX cw(bf) = VX cw(b) + VX cw(v) QX cw Quantty of exports (carcass weght) 000 T Data, where QX cw(bf) = QX cw(b) + QX cw(v) MM cw Marketng Margns (carcass weght) LC/T T 1(cw) + T 2(cw) + S cw S cw Processng costs LC/T Data T 1(cw) Handlng and transportaton wholesale/border LC/T Data T 2(cw) Handlng and transportaton farm/wholesale LC/T Data RP cw (B,V) Reference Prce (Beef and veal) LC/T BP cw - MM cw RP cw Reference Prce (weghted average) LC/T [RP cw(b) * QP cw(b) /QP cw(bf) ] + [RP cw(v) * QP cw(v) /QP cw(bf) ] MPD Market Prce Dfferental LC/T PP cw - RP cw Comparson: RP based on beef and veal smple average export prce RP cw Reference Prce (smple average) LC/T BP cw - MM cw MPD Market Prce Dfferental LC/T PP cw - RP cw THE PSE MANUAL OECD

80 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Annex 4.1 Methodology for calculatng the border prce for mlk Introducton 191. Snce flud mlk s not normally a tradable commodty, a border prce s not drectly observable. Consequently, from the early 1980s through to 2004 the annual reference prce for mlk n each country was derved from a New Zealand farm gate mlk prce, adjusted for country dfferences n mlkfat content and transportaton costs. In 2005 a new methodology was ntroduced and has been used to recalculate annual ndcators back to The key dea of the new method s to derve a reference prce from border prces of representatve, tradable dary products. Ths method s based on two assumptons. Frst, world markets for tradable dary commodtes are compettve. Ths allows the formaton of a sngle prce for each of the sold components (mlkfat, proten, lactose, etc.) of raw mlk. Second, each type of dary product contans unque and fxed amounts of each of these sold components of mlk The ssue s whch tradable dary products are to be selected. To have a meanngful comparson between domestc and border prces, selected dary products should be common, tradable products n global dary markets. From ths crteron, butter and skm mlk powder (SMP) were selected. Reference prces for most countres are calculated usng these two products. As a varaton of the method, cheese was selected n addton to the above two dary products f the polcy, trade or other factors n partcular countres were such that addng addtonal products would ncrease the accuracy of the calculaton. The reference prce for mlk n the EU and Swtzerland s calculated usng ths varaton. Implct border prce of raw mlk Two dary products case (butter and SMP) 194. Two sold components n dary products mlkfat and non-fat-solds are consdered. Frst, the mplct prces of the two components are calculated from the border prces of butter and SMP, and the percentage of fat and non-fat-solds n these two products. The approprate border prces to use for butter and SMP follow the general procedure for selectng a border prce for any other commodty,.e. dependng on whether the country s a net exporter or mporter of the product (as to whether an FOB or CIF prce s used) and the regularty and quantty of product traded (as to whether the country s own or another country s CIF or FOB prces are used). 78 THE PSE MANUAL OECD 2010

81 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 195. The mplct prces of mlkfat and non-fat-solds are calculated by solvng the followng equatons. ax cy BPb bx dy BPs [A4.1] where X and Y are the mplct prces of mlkfat and non-fat-solds respectvely, a and b are the percentage of mlk fat n one tonne of butter and SMP respectvely, c and d are the percentage of nonfat-solds n one tonne of butter and SMP respectvely, BP b and BP s are butter and SMP prces at the border of the country n queston respectvely Solvng the above equatons results n: X dbpb cbps [A4.2] ad bc and Y abps bbpb [A4.3] ad bc 197. The mplct border prce of raw mlk can be wrtten as: BP m ex fy [A4.4] where e and f are the percentage of mlkfat and non-fat-solds n one tonne of raw mlk respectvely Usng results of X and Y, BP m can also be wrtten as: BP m BP BP [A4.5] b s de bf af ce where and [A4.6] ad bc ad bc Three dary products case (butter, SMP and cheese) 199. Where three dary products are used, three man sold components are consdered: mlkfat, proten and lactose. From the border prces of the three dary products and ther percentage of mlkfat, proten and lactose, the mplct prces of three sold components are calculated. The mplct border prce of raw mlk can be calculated from these three mplct prces and the percentage of the three sold components n raw mlk. THE PSE MANUAL OECD

82 Chapter 4. Estmatng Polcy Transfers: Prce Transfers 200. In equaton form, the mplct raw mlk prce can be wrtten as: BP m ex nz ow [A4.7] where X, Z and W are mplct prces of mlkfat, proten and lactose respectvely, at the border, and e, n and o are the tonnes of mlkfat, proten and lactose contaned n one tonne of raw mlk respectvely From the nformaton about the composton of the three dary products, the mplct prces of the three components can be estmated as the soluton of the followng equatons. ax hz kw BPb bx Z lw BPs gx jz mw BPc [A4.8] where a, b and g are the percentage of mlkfat n one tonne of butter, SMP and cheese respectvely; h,, and j are the percentage of proten n one tonne of butter, SMP and cheese respectvely; k, l, and m are the percentage of lactose n one tonne of butter, SMP and cheese respectvely; BP c s the cheese prce at the border Solvng the equatons leads to: BPb ( m jl) BPs ( jk hm) BPc ( hl k) X am ghl bjk ajl bhm gk BPb ( gl bm) BPs ( am gk) BPc ( bk al) Z am ghl bjk ajl bhm gk BPb ( bj g) BPs ( gh aj) BPc ( a bh) W am ghl bjk ajl bhm gk Usng the above results, BP m BP BP BP b s BP m can be rewrtten as: c [A4.9] [A4.10] where γ, δ and ε are defned as: e( m jl) n( gl bm) o( bj g) a( m jl) h( gl bm) k( bj g) e( jk hm) n( am gk) o( gh aj) b( jk hm) ( am gk) l( gh aj) e( hl k) n( bk al) o( a bh) g( hl k) j( bk al) m( a bh) [A4.11] 80 THE PSE MANUAL OECD 2010

83 Chapter 4. Estmatng Polcy Transfers: Prce Transfers Marketng (Processng) 14 margn 203. The above mplct border prce ncludes marketng margns, snce t s derved from processed dary products. Therefore, the margn must be subtracted from the mplct border prce n order to obtan the reference prce. However, n most countres data on marketng margns s not avalable from offcal statstcal sources. As a practcal alternatve, the mplct wholesale prce of raw mlk s calculated from the wholesale prces of butter and SMP n the same way as the mplct border prce of mlk was calculated from the border prces of butter and SMP. The processng margn s obtaned by subtractng the producer prce for manufacturng qualty mlk from the mplct wholesale prce of raw mlk. In equaton form, processng margn MM can be wrtten as: MM ( WP WP ) PP [A4.12] b s m de bf af ce where and [A4.13] ad bc ad bc where WP b and WP s are, respectvely, butter and SMP prces n the domestc wholesale market and PP s the domestc producer prce for manufacturng mlk. m Implct reference prce for mlk 204. The reference prce for mlk s obtaned by subtractng the marketng margn from the mplct border prces of raw mlk. Mlk reference prces for countres other than the four major exportng countres can be wrtten as: RP m ( BP BP ) MM for the case of two dary products [A4.14] b s and RP m ( BP BP BP ) MM b s c for the case of three dary products [A4.15] 205. For the major exportng countres, such as Australa, the European Unon, New Zealand and the Unted States ther own processng margns, as defned n equaton A4.11, are used to calculate RPm or RP m. For the majorty of other countres the smple average of the marketng margns for Australa, the European Unon, New Zealand and the Unted States s used to calculate mlk reference prce, whle for several non-eu European countres the EU marketng margns are used. Ths approach s manly explaned by data lmtatons, however t seems reasonable, snce these four countres are the world s major producers and exporters of dary products and ther marketng margns represent a reasonable approxmaton for other countres. Work example 206. Table A4.1 provdes an example of how the reference prce for mlk s calculated on the bass of two dary products, butter and SMP. Usng the data on border prces and on content of mlkfat and non-fat solds n these two products, mplct border prces for mlkfat (X) and non-fat solds (Y) are derved (equatons A4.2 and A4.3). An mplct border prce of raw mlk s then calculated, as a 14. Marketng margn s understood here to nclude processng margn only and therefore the two terms are used nterchangeably. THE PSE MANUAL OECD

84 Chapter 4. Estmatng Polcy Transfers: Prce Transfers weghted average of X and Y, wth weghts beng the percentages of mlkfat (e) and non-fat solds (f) n raw mlk (equaton A4.4) An alternatve way to derve the mplct border prce of mlk would be to frst compute coeffcents α and β (shares of border prces of butter and SMP n the mlk prce) from the percentages of mlkfat and non-fat solds content n butter, SMP and raw mlk (equaton A4.6). The mplct border prce of mlk s then calculated as a weghted average of the border prces of butter and SMP (BP b and BP s ), wth weghts beng coeffcents α and β (equaton A4.5). As s shown n Table A4.1, ths leads to the same result n terms of the mplct border prce of mlk The next step s to calculate the marketng margn. As noted above, for the four major exporters ths s done by usng the nformaton on domestc (wholesale and producer) prces of mlk, butter and SPM and coeffcents α and β. For the majorty of other OECD countres an average of the marketng margns of the four exporters s appled, and for several non-eu European countres the marketng margns are assumed to be the same as those of the EU Fnally, an mplct mlk reference prce s derved by subtractng the calculated marketng margn (MM) from the mplct mlk border prce BP M and the MPD s calculated as the dfference between the domestc producer prce and the mplct mlk reference prce ( RP ). Table A4.1. MILK: Calculaton of an mplct Reference Prce and MPD m Symbol Descrpton Unts Value Source / equaton PP m Producer Prce of raw mlk LC/T 400 Data BP b Border Prce - Butter LC/T 3000 Data BP s Border Prce - SMP LC/T 2500 Data a Mlkfat content n butter % 81 Data c Non-fat solds content n butter % 1 Data b Mlkfat content n SMP % 1 Data d Non-fat solds content n SMP % 86 Data e Mlkfat content n raw mlk % 4 Data f Non-fat solds content n raw mlk % 8 Data BP m Implct Border Prce of raw mlk: opton 1 LC/T 376 (ex+fy)/100 X Implct Border Prce of mklfat LC/T 3668 (dbp b -cbp s )/(ad-bc)*100 Y Implct Border Prce of non-fat solds LC/T 2864 (abp s -bbp b )/(ad-bc)*100 BP m Implct Border Prce of raw mlk: opton 2 LC/T 376 αbp b + βbp s α Share of butter prce n mlk prce Rato 0.05 (de-bf)/(ad-bc) β Share of SMP prce n mlk prce Rato 0.09 (af-ce)/(ad-bc) MM Marketng Margn LC/T 60 (αwp b + βwp s ) - PP m RP m Reference Prce of raw mlk LC/T 316 BP m - MM MPD Market Prce Dfferental LC/T 24 PP m - RP m 210. When three dary products are nvolved (butter, SMP, and cheese) the calculaton follows the same steps. In ths case prces for these three dary products and ther content n terms of fat, proten and lactose are consdered. Equatons related to the three-product case are appled (A4.7 A4.11 and A4.15). 82 THE PSE MANUAL OECD 2010

85 Chapter 5. Estmatng Polcy Transfers : Other Transfers CHAPTER 5. ESTIMATING POLICY TRANSFERS: OTHER TRANSFERS 211. Ths chapter completes the dscusson of polcy transfers, focusng on transfers that emerge from polces other than those affectng market prces for agrcultural commodtes. These polces provde support based on: (a) actual budgetary transfers; and (b) revenue foregone by the government and other economc agents Budgetary transfers Budgetary transfers through all government nsttutons, both natonal and sub-natonal, are ncluded. Budgetary transfers assocated wth the admnstraton of polces (desgn, mplementaton and evaluaton) are not ncluded n the estmates of support. Care should be taken to avod double countng of support, n partcular n treatng budgetary transfers assocated wth market prce support polces. Budgetary transfers are allocated to calendar years; n cases where agrcultural, fscal and calendar years do not concde, varous procedures are needed to attrbute transfers approprately Budgetary transfers are the most vsble polcy transfers. They are observed and do not need to be estmated as s the case wth the prce transfers or support based on revenue foregone. The measurement of drect budgetary transfers s an accountng task, whch conssts of the approprate use of nformaton on budgetary spendng. Ths secton detals the man procedures for accountng for budgetary transfers n support estmaton Complete coverage of nsttutons, admnstratve levels and fnancng nstruments 213. The frst step s to dentfy all budgetary expendtures underlyng polces whch support agrcultural producton whether provded to producers ndvdually, producers collectvely, or consumers of agrcultural commodtes. The prncple of complete dentfcaton of all publcly fnanced transfers has three aspects: Frst, all fnancng through publc nsttutons nvolved should be captured, payng attenton to the fact that mplementaton and fundng of some agrcultural measures may be outsde the remt of agrcultural mnstres. Ths often concerns general servces for agrculture, such as agrcultural educaton, research, pest and dsease control, or nfrastructural development. Another example s agr-envronmental measures, whch may be mplemented by and fnanced through the mnstres and agences specfcally responsble for envronmental ssues. THE PSE MANUAL OECD

86 Chapter 5. Estmatng Polcy Transfers : Other Transfers Second, fundng from all admnstratve levels should be covered. Agrcultural polcy measures are fnanced at multple levels of government. For example, n a country wth a federal government structure, support from natonal as well as state, provnce or prefecture level should be covered, as well as measures that are fnanced more locally, for example from countes, communes or townshps. By conventon, all expendtures beneath the natonal level are termed sub-natonal. Also by conventon, EU-level expendtures are consdered as the natonal level, wth EU country expendtures (ncludng those made at regonal levels) as at the sub-natonal level. Some EU polces, such as elements of ts rural development polcy, are co-fnanced across several levels of government, wth the EU budget fnancng part of the costs of a programme, augmented by expendture from an EU country government s budget, wth the possblty of addtonal expendture by a regonal or local government entty wthn that country. Thrd, all publc fnance nstruments should be covered. In some non-oecd countres, for example Brazl and Russa, agrcultural support may also be fnanced from the so-called extra-budget funds nstruments whch do not formally consttute part of the natonal budgets. Such funds may be created at the natonal or regonal level and are usually used for mplementaton of specfc programmes Accountng of effectvely dsbursed funds 214. Data on effectvely dsbursed as opposed to planned or budgeted funds should be used. The prncple s to capture transfers that actually affect producer revenues. The dfference between budgeted and effectvely dsbursed outlays can be large, for example when emergency assstance s provded over and above the ntal budget appropraton, or n the case of defcency payments, when there s consderable under- or over-spendng due to favourable or unfavourable market condtons. It s mportant to ensure that all spendng tems are accounted for consstently n terms of amounts effectvely dsbursed. However, f the estmatons are done on an annual bass, such nformaton may not be avalable n tme for the latest year n ths case data on budgeted expendtures are used, whch are then adjusted the followng year to reflect actual spendng Treatment of polcy admnstraton costs 215. Admnstraton costs nclude those assocated wth the desgn, mplementaton and evaluaton of agrcultural polces. It s mportant to dstngush dfferent types of budgetary expendtures related to admnstraton of agrcultural polces: Admnstratve expendtures by mnstres, ncludng staff salares, materal, buldng and other costs. Salares and wages of those employed n research, nspecton, extenson and other servces. Payments to banks, nsurance companes, producer organsatons or commodty boards, to cover ther costs assocated wth mplementng support polces The prncple s to exclude admnstratve expendtures of the mnstres from the estmaton of support as they represent expendtures on operatons common to any publc structure and are not polcy transfers as such. However, when the polcy measure s actually delverng a servce that benefts producers ndvdually (e.g. extenson) or collectvely (e.g. research and nspecton), expendtures assocated wth the delvery of the servce, manly the salares of extenson advsors, nspecton offcers, researchers, etc., are ncluded n the PSE and the GSSE respectvely. 84 THE PSE MANUAL OECD 2010

87 Chapter 5. Estmatng Polcy Transfers : Other Transfers 217. In some countres, the government grants to other agences (publc, mxed or prvate bodes) responsblty for mplementng some agrcultural polcy measures. Commodty boards can be n charge of nterventon and storage measures. Producer organsatons may be nvolved n polcy mplementaton. Banks may delver agrcultural nvestment loans wth preferental condtons (generally nterest concessons), and n many countres, nsurance companes delver subsdsed nsurance programmes. Consultng companes or NGOs can help farmers prepare applcatons for project-based measures When polces are delvered by sem-publc or prvate companes, the government may compensate them for part or all of the costs assocated wth mplementng the polcy measure, n addton to channellng fnancal support to farmers through these organsatons. As n the case of drect delvery by mnstry offcals, these mplementaton costs are excluded from the PSE. In the case of nvestment and nsurance programmes, the government may pay for two components: support to farmers (e.g. nterest concesson on loans, or a subsdy to nsurance prema), as well as the programme admnstraton costs, whch are transfers to the mplementaton agences. Those two cost components are usually dentfed n the programme. The frst one s ncluded n the PSE, whle the other s not Avodng double-countng of support: an example of outlays on prce regulaton 219. In workng wth budgetary expendtures, specal care should be taken to avod doublecountng of support n the PSE. Ths rsk exsts when budgetary expendtures underle support whch has already been ncluded elsewhere. The clearest example s budgetary expendtures related to domestc prce nterventons. Several such expendtures can be dstngushed: (a) nterventon purchases; (b) export subsdsaton (outlays on export subsdes, export credts or food ad); (c) prce subsdes (defcency payments); (d) payments for on-farm stockholdng; (e) outlays for publc stockholdng, whch nclude operatonal costs of publc purchasng agences and deprecaton and dsposal costs assocated wth publc stocks; (f) compensatory payments to consumers, e.g. subsdes to the frst purchasers of agrcultural commodtes mlls, dares, slaughterhouses, etc. provded to reduce the burden mposed on them by agrcultural prce support When the Market Prce Dfferental (MPD) and consequently the prce transfers are estmated by comparng domestc and border prces, outlays for nterventon purchases (group a above) or export subsdes (group b), f they are appled, should not be ncluded n the PSE. The purpose of these expendtures s to rase the level of domestc prces and ths support s already captured through the prce gap. Incluson of groups (a) and (b) n the budgetary part of support n ths case would create double-countng wth prce transfers. When the MPD s estmated based on per tonne defcency payments (group c) or per tonne export subsdes (group b) these budgetary tems represent drect nput nto estmaton of prce transfers, and also should not appear n the budgetary transfers. The groups that should be accounted n the budgetary transfers are: payments for on-farm stockholdng (group d), classfed n PSE category A2. Payments based on output; expendtures on publc stockholdng (group e), classfed n GSSE category M. Publc stockholdng; and compensatory payments to consumers (group f), classfed n the CSE as a Transfers to Consumers from Taxpayers (TCT) Attrbuton of budgetary allocatons to calendar years 221. Support estmates are made on a calendar-year bass and, as such, budgetary expendtures should be allocated to calendar years. Ths may not be straghtforward, as some support programmes have cycles that correspond to crop (agrcultural) years, whle the budgetary fundng s based on fscal years. These calendar, crop and fscal years may not fully concde,.e. they may cover dfferent tme THE PSE MANUAL OECD

88 Chapter 5. Estmatng Polcy Transfers : Other Transfers laps. The prncple s to allocate a payment of a partcular crop year to the calendar year to whch the producton of that crop year s attrbuted. For example, suppose that a crop year t starts n calendar year t, and the crop s harvested n that same calendar year t. However, payments wth respect to crop year t are made on the bass of the fscal year and may fall mostly nto calendar year t+1. In ths case, payments made n calendar year t+1 (regardless of fscal year) should be allocated to calendar year t because the crop for whch the payment was made s attrbuted to that calendar year. Wth decoupled payments, the rule s extended to cover payments wth respect to land n agrcultural use at gven dates or for envronmental actons taken over specfc perods. For example, f a payment s based on land n agrcultural use or anmals held at a gven date, t would be assgned to the calendar year n whch ths date occurs Classfcaton of budgetary spendng 222. Once all budgetary spendng tems are dentfed, adjusted and allocated to approprate years, they should be classfed nto the three man categores of support: support to producers ndvdually (PSE), fnancng of general servces to agrculture (GSSE), and support to consumers (CSE). Ths task s treated n detal n Chapter 3. One specfc problem whch may be encountered n classfyng expendtures s that the budgetary data reported s too aggregated to be drectly allocated to a partcular category. For example, data may be presented by broad agrcultural programmes or by mplementng agences heterogeneous groupngs that combne varous types of expendtures. In such cases, t s mportant to make an attempt to obtan dsaggregated data. If exact nformaton s not avalable, then some reasonable approxmaton s requred to allocate the spendng tems to ndvdual polcy measures, and hence to the approprate support category. For example, some assumed percentage shares to dstrbute the aggregate spendng can be used. Ths nvolves some error; however t s lkely to be smaller than f the amount was omtted entrely Support based on revenue foregone Producers can be supported through polcy measures whereby governments or other economc agents forego revenue that they would otherwse collect from or charge to producers. Typcal forms of revenue foregone are tax concessons, preferental lendng, debt restructurng, and admnstered prces for nputs and servces. A prce gap method, smlar to that used to estmate MPD, s often the most approprate method. However, selectng an approprate reference varable may be dffcult Support may be provded n forms that do not mply actual budgetary transfers, but at the cost of revenue foregone by the government or other economc agents. Such support creates mplct transfers to producers and should also be dentfed and quantfed. Ths secton presents several types of support based on revenue foregone currently covered n support estmatons. Approaches to quantfyng the assocated polcy transfers are also dscussed. The measurement of transfers based on revenue foregone s largely an emprcal task, nvolvng assumptons and judgement about the approprate reference aganst whch to measure the transfer. A good understandng s needed of both the mplementaton mechansms underlyng such polces and the broader economc context Tax concessons 224. Tax concessons are a common type of support to agrcultural producers that generate budgetary revenue foregone. Concessons may apply to taxes on ncome, profts and captal gans, real estate and land. Agrcultural producers may be granted preferental treatment on VAT (e.g. appled to purchased nputs), on fuel taxes, or on deprecaton methods. Farm operators may beneft from 86 THE PSE MANUAL OECD 2010

89 Chapter 5. Estmatng Polcy Transfers : Other Transfers preferental treatment on taxes on payroll. The prncple of consstent coverage of all polcy measures supportng agrculture means that tax concessons should be ncluded n estmated support when they are agrculture-specfc or when agrcultural producers are ther prncpal benefcares. Tax concessons occur when a fscal advantage s conferred on a group of ndvduals, or on a partcular actvty, by reducng tax lablty rather than by drect cash subsdy (James and Nobles, 1992). Tax concessons can come n varous forms of specal treatment that relate to one of the basc features that characterse the structure of a tax. These can be formulated as follows: Exemptons: amounts excluded from the tax base. Allowances: amounts deducted from the benchmark to arrve at the tax base. Credts: amounts deducted from tax lablty. Rate relef: a reduced rate of tax appled to a class of tax payers or taxable transactons. Tax deferral: a relef that takes the form of a delay n payng tax Each of these forms mply that some tax revenue s foregone and economc ncentves are beng provded, n much the same way as would happen wth a programme nvolvng budgetary expendture The above defnton of a tax concesson presumes a counterfactual,.e. the exstence of a group of ndvduals or actvty for whch no such fscal advantage s gven. The support assocated wth preferental taxaton can therefore be measured by establshng a counterfactual and quantfyng the monetary value of the reducton n tax lablty aganst that counterfactual A complete and relable quantfcaton of tax concessons s therefore a complex emprcal task, requrng a consderable amount of resources and nformaton. Very few countres themselves calculate the value of tax revenue foregone. An approach has been adopted to lmt the coverage of tax concessons to those that unambguously confer benefts on agrculture, and the value of whch can be estmated at reasonable cost and wth reasonable accuracy In ths context, a specal effort has been made to estmate the value of fuel tax concessons to cover all countres where such a polcy exsts. Ths choce reflects the fact that ths polcy occurs n many countres and s relatvely easly measured. Other tax concessons covered n the current ndcator database relate to ncome tax (e.g. n Australa, Mexco, Norway and the Unted States) and to property tax exempton (n Canada). The monetary estmates of related concessons are provded by the countres and are usually based on nformaton from mnstres of fnance Agrcultural producers are often treated dfferently from other ctzens wth respect to socal securty systems. The dfferences may concern the prncples of partcpaton (voluntary or compulsory), contrbuton rates, and enttlement. In some cases, ths may result n preferental treatment for producers. However, by conventon, these ssues are not covered wthn the framework of measured support, because the level of specal treatment s dffcult to establsh. For example, transfers may reflect the demographc structure of the farm populaton, rather than a concesson as such. Therefore, no attempt s made to estmate transfers assocated wth dfferentated socal securty treatment or wth any other socal benefts accorded to agrcultural producers Preferental lendng 230. Governments often ntervene to reduce the cost of borrowng for agrcultural producers. When agrcultural producers are enabled to borrow at favourable terms compared to other busnesses, transfers are created, and these need to be accounted for n producer support estmaton. THE PSE MANUAL OECD

90 Chapter 5. Estmatng Polcy Transfers : Other Transfers 231. Some governments subsdse nterest rates charged to agrcultural borrowers. The lendng banks receve budgetary compensaton whch covers part of the nterest rate due on agrcultural loans. Ths descrbes preferental lendng n a number of OECD and non-oecd countres. In these cases, government spendng can be used as a measure of the related polcy transfers In some cases, governments rely on mechansms of credt support that do not generate budgetary spendng. Specal condtons may apply, such as fxed or mnmum nterest rates; or credt nsttutons may be requred to drect certan amounts of credt to agrculture. When such polces are mplemented through state-owned lendng nsttutons, the nterest lost s a form of budgetary revenue foregone. Sometmes prvate lenders are also oblged to apply reduced nterest rates to agrcultural loans and to allocate certan amounts of ther credt for such lendng. In ths case, provson of preferental credt s based on admnstratve regulaton, and the assocated support to agrcultural borrowers s provded at the cost of revenue foregone by prvate lenders (who most lkely crosssubsdse these operatons through other lendng). Ths stuaton s characterstc of Brazl where a large share of agrcultural loans s provded under admnstratve control. When governments set nterest rates and drect resources for lendng admnstratvely, wthout compensaton, the assocated support needs to be estmated. For OECD countres the estmates are provded by member countres, whle for non-oecd countres estmaton s carred out by the OECD The approach used s smlar to prce gap measurement, wth the preferental nterest rate compared to a reference (opportunty cost) rate. The transfers arsng from preferental lendng (TPL) are equal to the nterest rate dfferental multpled by the amount of credt, more formally expressed as follows: TPL where Y t r p t t Lt [5.1] TPL polcy transfers from preferental lendng accumulated over a year Y r t p t L t Y reference nterest rate at pont of tme t n year Y preferental (controlled) nterest rate at pont of tme t n year Y value of outstandng preferental debt at pont of tme t n year Y 234. The value of the outstandng debt (L t ) s a stock value correspondng to a specfc pont n tme. TPL Y n equaton 5.1 s the sum of dscrete values of nterest foregone estmated for a number of tme ponts n a gven year. In order to capture most accurately the annual value of TLP, as many tme ponts as possble should be ncluded, e.g. the monthly data on outstandng credt and nterest rates Informaton on the value of the outstandng debt may only be avalable on a quarterly or annual bass. It s possble to nterpolate these data to obtan monthly estmates of outstandng debt by applyng some assumptons on the evoluton of the debt between two known ponts n tme. If data on outstandng debt s not avalable, nformaton on the amount of new preferental loans may be used. It s possble to estmate the amount of outstandng credt by usng these data and nformaton on the standard tme structure of these loans Estmaton of transfers assocated wth preferental lendng demands good knowledge of agrcultural lendng condtons, whch may vary by lendng programmes and types of benefcares and may be subject to frequent changes. It s also mportant to have adequate nformaton on the values of outstandng debt and/or allocatons of new preferental loans. A choce of approprate reference 88 THE PSE MANUAL OECD 2010

91 Chapter 5. Estmatng Polcy Transfers : Other Transfers nterest rate to represent the opportunty cost for preferental credt requres judgement based on overall knowledge of credt markets n a gven country Agrcultural debt concessons 237. Agrcultural producers sometmes beneft from debt concessons provded by the government to overcome problems of bad debts, or as part of a reform package, etc. Agrcultural debt forgveness has occurred, for example, n Australa, Canada, Mexco, New Zealand, and some EU member states. Non-OECD countres, such as Brazl, Russa, Romana and Ukrane, saw severe farm fnance crses n the perod of transton to the market economy. The governments responded by largescale restructurngs of accumulated bad debt, often followed by further restructurngs nvolvng addtonal bad debts, and/or repackagng of prevous schemes Debt concesson schemes may also nvolve extensons of repayment perods, reduced nterest on overdue debt, and partal wrte-offs. These concessons create transfers to debtors, whch need to be quantfed and ncluded n the estmaton of support, rrespectve of what caused the accumulaton of debt and the objectves whch led the government to restructure t. For OECD countres, the estmates are usually provded by the countres themselves, whle for non-oecd countres, estmaton s carred out by the OECD The quantfcaton of transfers assocated wth debt reschedulng, through the extenson of the repayment perod and/or reduced nterest, s also based on estmatng the nterest foregone, as appled to preferental lendng of the type dscussed n sub-secton 5.2.2, equaton 5.1 can be used, where p s set at zero over the perod of debt non-repayment, whle for the perod of repayment of the restructured debt the rate that s appled for such repayments (usually a preferental rate set below the fnancal market level) s used. The estmaton requres the tme seres of outstandng overdue credt (L t ) and the relevant nterest rates n order to calculate the nterest rate dfferental. It s necessary to establsh the tme structure of overdue debt, the perod over whch t has accumulated and how ts value has been evolvng durng the perod, as well as the schedule adopted for the repayment. In addton, the nterest rate set for the repayments ( p ) needs to be obtaned and an adequate reference nterest rate ( r ) selected As concerns the transfers assocated wth wrte-offs of captal, penaltes and/or nterest, these values are often offcally reported and should also be captured n the measured support. However, care should be taken n the attrbuton of these amounts to partcular years. It would be ncorrect to allocate a sum wrtten off to the one year when the wrtng-off s mplemented, as ths sum represents debt accumulated over a number of years. The debt forgven should be allocated retrospectvely to the perod over whch t s known (or assumed) to have bult up. In the absence of suffcent detal, the wrtten-off debt can be allocated back to prevous years based on the tme structure of the total overdue debt subject to restructurng, or based on some other approprate allocaton prncple Admnstered nput prces 241. Agrcultural producers may also be supported through the admnstraton of prces for nputs and servces such as energy, rrgaton water and transportaton. Governments may mpose upper prce lmts for nputs and servces provded to agrcultural buyers. Some nputs (e.g. electrcty) may be suppled by state monopoles, whch practse dfferentated prcng, whereby agrcultural buyers are charged prces below levels set for other users. Such polces are smlar n nature to the provson of nput subsdes. The assocated transfer to producers per unt of nput purchased s equvalent to the prce reducton accorded to them compared to the prce pad by a reference (alternatve) buyer of the same nput. Ths approach has been used n estmaton of mplct support through reduced prces for THE PSE MANUAL OECD

92 Chapter 5. Estmatng Polcy Transfers : Other Transfers electrcty provded to agrcultural producers n Russa. The assocated transfer (TPEP) s estmated as follows: where TPEP Y PEn PEag Wag [5.2] TPEP transfers to producers from preferental electrcty prce over a year Y Y PE n average prce per kwt/hour of electrcty charged to ndustral users n year Y PE prce per kwt/hour of electrcty charged to agrcultural users n year Y ag W kwt/hours of electrcty provded to agrcultural users n year Y ag 242. The estmaton of the mplct prce dscount depends on the establshment of a reference buyer and the extent to whch prces charged to dfferent buyers can be compared. Data qualty and avalablty mean that estmatng the value of transfers through the use of prce gaps s not always possble. For example, n the case of support for water n agrculture, t s dffcult to fnd a prce charged to other sectors for water that has the same characterstcs as water used for agrculture, e.g. n terms of qualty, relablty or tmng. 90 THE PSE MANUAL OECD 2010

93 Chapter 6. Calculatng Indcators of Support to Producers CHAPTER 6. CALCULATING INDICATORS OF SUPPORT TO PRODUCERS 243. Indcators of support to ndvdual producers are the most wdely used of all the ndcators. The procedure for calculatng producer support ndcators s summarsed n Dagram 6.1. The process begns by calculatng Market Prce Support (MPS ) for a number of ndvdual commodtes from whch a natonal (aggregate) MPS value s extrapolated (secton 6.1). Ths s then combned wth the value of other transfers arsng from polces that support ndvdual producers to derve a value for the Producer Support Estmate (PSE) at the natonal level (secton 6.2). From ths value, the relatve ndcators, the %PSE and producer Nomnal Assstance Coeffcent (producer NAC) are derved (secton 6.3) As explaned n Chapter 2, the PSE can be separated nto four components representng dfferent degrees of commodty specfcty,.e. transfer provded on the bass of sngle commodtes e.g. wheat (Sngle Commodty Transfers, SCT), a group of commodtes, e.g. cereals (Group Commodty Transfers, GCT), all commodtes (All Commodty Transfers, ACT), or wthout oblgaton on the part of recpents to produce commodtes (Other Transfers to Producers, OTP). Transfers to sngle commodtes or groups of commodtes are further dstngushed at the ndvdual commodty (Producer SCT ) or groups of commodtes level (GCT K ) (secton 6.4). From these values, the relatve ndcators, the producer Nomnal Protecton Coeffcent (producer NPC ) and %SCT, can be derved for ndvdual commodtes and at the natonal level (sectons 6.5 and 6.6). Dagram 6.1. Procedure for calculatng ndcators of support to producers Commodty or group of commodtes level Monetary ndcators MPS Percentage ndcators or ratos Producer NPC GCT K Producer SCT %SCT Natonal (aggregate) level MPS PSE %PSE and Producer NAC GCT Producer SCT %SCT ACT OTP Producer NPC THE PSE MANUAL OECD

94 Chapter 6: Calculatng Indcators of Support to Producers 6.1. Market Prce Support (MPS) Market Prce Support (MPS): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, arsng from polcy measures that create a gap between domestc market prces and border prces of a specfc agrcultural commodty, measured at the farm gate level. MPS values are calculated for a set of ndvdual commodtes, whch are selected accordng to rules for the ncluson or excluson of each commodty The conceptual bass for calculatng MPS s descrbed n sectons 4.1 and 4.2. Ths secton explans the procedure to calculate a natonal (aggregate) MPS based on MPS values for ndvdual commodtes MPS for ndvdual commodtes 246. The process begns by calculatng MPS values for ndvdual commodtes consttutng a representatve sample. A standard set of ffteen ndvdual commodtes s frst consdered wheat (WT), maze (MA), other grans (OG) 14, rce (RI), rapeseed (RS), soybean (SB), sunflower (SF), refned sugar (RS), mlk (MK), beef and veal (BF), sheepmeat (SH), wool (WL), pgmeat (PK), poultry (PT) and eggs (EG). These are termed the standard MPS commodtes (SMC) (see Table 6.1) These ffteen commodtes were chosen ntally because they represented a sgnfcant proporton of agrcultural producton n a large number of OECD countres, and support polces were manly targeted to them. A standard set of commodtes allows comparsons between countres not only at the natonal (aggregate) level but also at the ndvdual commodty level or for subsets of commodtes The MPS values for ndvdual commodtes are used to obtan the natonal (aggregate) MPS for a country usng the extrapolaton method (explaned below). In order to reduce the assocated estmaton error, the MPS commodtes should represent a sgnfcant share of the total value of agrcultural producton n a country. In general, efforts are made to ensure that the sum of the value of producton of the ndvdual commodtes for whch MPS s calculated represents at least 70% of the total value of agrcultural producton on average over the prevous three years. If producton of a standard MPS commodty s very small,.e. less than 1% of total value of producton, MPS s not calculated for ths commodty. If the sum of the value of producton for the standard MPS commodtes wth the ndvdual shares above 1% s less than 70% of the total value of agrcultural producton n a country, addtonal commodtes are added untl ths threshold s reached. The combned group of commodtes for whch MPS s calculated, both standard and addtonal, are termed all MPS commodtes (AMC). 15 Note that ths procedure for defnng a representatve set of commodtes relates only to the MPS calculaton. Other transfers (budgetary and revenue foregone) cover all agrcultural commodtes produced n the country. 14. OG s consdered as a sngle commodty. In practce, however, t s a composte commodty that ncludes barely (BA), sorghum (SO), oats (OT) and/or rye (RY). Smlarly, wheat n case of the EU s a composte commodty that ncludes durum wheat (DW) and common wheat (CW). 15. As can be seen from Table 6.1, the aggregate share of All MPS commodtes s above or close to the 70% threshold n the majorty of countres for whch the OECD estmates support. However, ths share s relatvely low for Turkey (57%) and Korea (54%). In these countres the standard MPS commodtes comprse a much smaller proporton of the total agrcultural output than n other montored countres, whle the structure of the remanng producton s substantally dversfed. As a result, the ncluson of addtonal MPS commodtes above those n the standard set has relatvely lmted margnal effect on the overall coverage share. 92 THE PSE MANUAL OECD 2010

95 Chapter 6. Calculatng Indcators of Support to Producers Table 6.1. Indvdual commodtes for whch MPS s calculated n OECD and non-oecd countres Standard MPS Commodtes (SMC) All Commodtes All MPS Commodtes (AMC) Addtonal MPS Commodtes Non-MPS commodtes WT 1 MA OG 2 RI RS RP SF SB MK BF SH WL PK PT EG AP BN CC CF CT CU FL GA GR MN OR PN PO PP PR SP SW TB TM WI WMWO XE RY BA SO OA Country Other Commodtes (OC) Australa x x x x x x x x x x x x x x x x x x 69 Canada x x x x x x x x x x x 76 EU27 x x x x x x x x x x x x x x x x x x x x 74 Iceland x x x x x x x x 75 Japan x x x x x x x x x x x x x x x x x x x x 66 Korea x x x x x x x x x x x x 58 Mexco x x x x x x x x x x x x x x x x 67 New Zealand x x x x x x x x x x x x 72 Norway x x x x x x x x x x x 78 Swtzerland x x x x x x x x x x x x x 80 Turkey x x x x x x x x x x x x x x x x x 58 Unted States x x x x x x x x x x x x x x x x 71 Share of All MPS commodtes n Producton Value 3 Brazl x x x x x x x x x x x x 78 Chle x x x x x x x x x x x 66 Chna x x x x x x x x x x x x x x x x 63 Russa x x x x x x x x x x x x x 66 South Afrca x x x x x x x x x x x x x x x 73 Ukrane x x x x x x x x x x x x x Wheat s consdered a sngle commodty but may be a composte of durum wheat and common wheat, as n the case of the European Unon. 2. Other Gran s consdered a sngle commodty but may be a composte of rye, barley, sorghum and/or oats. 3. For OECD countres - average share for ; for non-oecd countres - average share for AP Apples BA Barley BF Beef and veal BN Dred beans CC Chnese cabbage CF Coffee CT Cotton CU Cucumbers EG Eggs FL Plants & flowers GA Garlc GR Grapes MA Maze MK Mlk MN Mandarns OG Other grans OR Oranges OA Oats PK Pgmeat PN Peanuts PO Potatoes PP Red pepper PR Pears PT Poultry RI Rce RP Rapeseed RS Raw sugar RY Rye SB Soybeans SF Sunflower SH Sheepmeat SO Sorghum SP Spnach SW Strawberres TB Tobacco TM Tomatoes WI Wne WL Wool WO Welsh onon WT Wheat THE PSE MANUAL OECD

96 Chapter 6: Calculatng Indcators of Support to Producers 249. Table 6.2 presents a country whch produces only sx of the ffteen standard commodtes wheat, other grans (.e. barley and oats), mlk, beef and veal, poultry and eggs, so that MPS cannot be calculated for the other nne standard commodtes. Further, the value of producton for both poultry and eggs s below 1% of the total value of producton, and so MPS s not calculated for these two commodtes ether. Table 6.2. Selecton of ndvdual commodtes for MPS estmaton (example) Indvdual Cumulatve Wheat Maze Other grans: Barley Oats Rce Rapeseed Soybean Sunflower Sugar Mlk Beef (ncludng veal) Sheepmeat Wool Pgmeat Poultry Eggs Standard MPS commodtes (SMC), sub-total (excludng poultry and eggs) Cotton Potatoes Addtonal MPS commodtes, sub-total All MPS commodtes (AMC) Non-MPS commodtes (XE) Total value of agrcultural producton (VP) LC: Local currency. Value of producton LC mllon Shares n producton % 250. The four standard commodtes for whch MPS s calculated (barley and oats beng treated as one commodty other grans ) represent 58% of the total value of agrcultural producton. Addtonal commodtes are thus needed to reach the 70% threshold. In ths example, cotton and potatoes have mportant shares n the value of producton. By addng these two commodtes, the MPS s calculated for sx commodtes that together represent 73% of the total value of agrcultural producton. Table 6.1 shows the ndvdual commodtes for whch MPS s calculated (both standard and addtonal MPS 94 THE PSE MANUAL OECD 2010

97 Chapter 6. Calculatng Indcators of Support to Producers commodtes) for OECD and several non-oecd countres, as well as the aggregate share of these commodtes n the total value of agrcultural producton Havng defned the lst of commodtes, the next step s to estmate the MPS for each commodty. The process nvolves the estmaton of Market Prce Dfferentals (MPDs), but frst t s requred to determne whether there are polces n place whch create a prce gap between domestc market and border prces of the commodty n queston. If such polces are n place, an MPD s estmated based on the procedures explaned n secton 4.4. If there are no such polces n place for the commodty n queston, the MPD for ths commodty s set at zero. Note that commodtes for whch MPS s not calculated are dfferent from those for whch MPD s set at zero: the former are those wth a share of producton of less than 1%; the latter do not have polces affectng ther market prce. 17 Once the MPDs have been estmated for selected commodtes, the Excess Feed Cost (EFC) and then the Market Prce Support (MPS) are calculated (as descrbed n secton 4.2) Tables 6.3 and 6.4 llustrate the procedure for calculatng MPS and EFC for ndvdual commodtes. When data s ndcated as a source n the last column, the varable comes from an orgnal data nput. The data requred for the calculatons are summarsed n Chapter 10. The MPD s set to zero n the case of oats and potatoes, as no polces are n place that change the market prce receved by producers of these commodtes. The quantty of feed consumed by lvestock producers ncludes only domestcally produced feed (as explaned n secton 4.2). Box 6.1. Descrpton of a PSE Country Fle The OECD calculates the ndcators of support for each country wthn ndvdual PSE Excel fle (wth the EU27 treated as one country). 1 There are four standard types of worksheets wthn each country fle: (1) A worksheet named TOTAL n whch most of the natonal (aggregate) ndcators are calculated, such as the PSE, GSSE, CSE and TSE, as well as the %PSE, producer NAC, %CSE and consumer NAC. Ths worksheet contans all polcy transfers ncluded n the estmaton of support for a country, shown under the approprate PSE, GSSE and CSE categores. Labels are also attached to each transfer, as defned n sub-secton (2) A worksheet named SCT GCT n whch the ndvdual commodty producer SCT values are combned to calculate natonal (aggregate) producer SCT and %SCT ndcators. Ths worksheet s also used to dentfy the Group Commodty Transfers (GCT), and calculate All Commodty Transfers (ACT) and Other Transfers to Producers (OTP) based on the labels gven to each polcy measure n the worksheet TOTAL. (3) A group of standard worksheets named XX SCT n whch the Producer Sngle Commodty Transfers (producer SCT) and %SCT ndcators are calculated for each commodty, ncludng a worksheet for non-mps commodtes named XE SCT. (4) A group of standard worksheets named XX MPS n whch MPS s calculated for each commodty, where XX s a two-letter commodty abbrevaton, e.g. WT stands for wheat and MK for mlk. Ths worksheet also contans the data and formulas for calculatng the Consumer Sngle Commodty Transfers (consumer SCT) as well as the producer NPC and consumer NPC, for the commodtes concerned. The tables presented n chapters 6, 7 and 8 are based on the structure of the country-specfc PSE fles descrbed above, whch are avalable n the ndcator database ( along wth the countryspecfc documentaton (Defntons and Sources), provdng defntons of data seres used and sources. The country data are combned usng a SAS programme to derve ndcators at the total OECD level (see Chapter 9). 1. Separate PSE fles are addtonally avalable for EU25 aggregaton. 17. MPD s also set to zero n some cases when t takes a negatve value (Box 4.1). THE PSE MANUAL OECD

98 Chapter 6: Calculatng Indcators of Support to Producers Table 6.3. Calculaton of MPS for ndvdual commodtes (example) Symbol Descrpton Unts Wheat Barley Oats Mlk Beef Cotton Potatoes Source / equaton QP Level of producton 000 T Data VP Value of producton (at farm gate) LC mllon Data or (QP * PP ) QC Level of consumpton 000 T Data or (QP + QM - QX + STK ) QM Imports 000 T Data QX Exports 000 T Data STK Stock change 000 T Data PP Producer prce (at farm gate) LC/T VP / QP or data RP Reference prce LC/T Data MPD Market Prce Dfferental LC/T RP - PP TPC Transfers to producers from consumers LC mllon If QC > QP then MPD *QP, otherwse MPD *QC TPT Transfers to producers from taxpayers LC mllon If QC > QP then 0, otherwse MPD *(QP - QC) LV Prce leves LC mllon Data EFC Excess Feed Cost LC mllon Table 6.4 MPS Market Prce Support LC mllon TPC + TPT - LV - EFC Table 6.4. Calculaton of EFC for lvestock commodtes (example) Symbol Descrpton Unts Wheat Barley Oats Total EFC for commodty Source / equaton QC feed (mlk) Quantty of feed crop used for mlk producton 000 T Data MPD Market Prce Dfferental for feed crop LC/T Table 6.3 EFC (mlk) Excess Feed Cost for mlk LC mllon MPD * QC feed (mlk) QC feed (beef) Quantty of feed crop used for beef producton 000 T Data MPD Market Prce Dfferental for feed crop LC/T Table 6.3 EFC (beef) Excess Feed Cost for beef LC mllon MPD * QC feed (beef) 96 THE PSE MANUAL OECD 2010

99 Chapter 6. Calculatng Indcators of Support to Producers Natonal (aggregate) MPS 253. Once MPS values have been calculated for ndvdual commodtes, a natonal (aggregate) MPS can be derved. Ths procedure s called MPS extrapolaton and s based on the assumpton that the rato between the natonal (aggregate) MPS and the total value of producton s equal to the rato between MPS and the value of producton for the commodtes for whch MPS has been calculated. Ths s expressed as: where MPS VP C C MPS C VP C AMC AMC AMC AMC MPS VP natonal (aggregate) MPS for country C value of agrcultural producton n country C MPS MPS for all commodtes for whch MPS has been calculated (AMC) VP [6.1] value of producton for all commodtes for whch MPS has been calculated 254. Therefore the formula for estmatng the natonal (aggregate) MPS for a country s: MPS C AMC AMC MPS VPC VP 255. Ths procedure s shown for the example country n Table 6.5. The values of MPS for each ndvdual commodty are added together, ncludng those for whch t s zero (gvng 195 mllon n local currency unts). The result s dvded by the value of producton for these commodtes, ncludng those for whch MPS s zero, and multpled by the total value of producton. The extrapolaton yelds a natonal (aggregate) MPS of 268 mllon n local currency unts. Table 6.5. Calculaton of natonal (aggregate) MPS (example) Symbol Descrpton LC mllon Source / equaton VP C Total value of producton (at farm gate) Table 6.2 VP AMC Value of producton of all MPS commodtes Sum of VP of all MPS commodtes MPS WT Wheat MPS 23 Table 6.3 MPS BA Barley MPS 7 Table 6.3 MPS OT Oats MPS 0 Table 6.3 MPS MK Mlk MPS 117 Table 6.3 MPS BF Beef MPS 31 Table 6.3 MPS SMC Standard MPS commodtes, sub-total 177 Sum of MPS of standard MPS commodtes MPS CT Cotton MPS 18 Table 6.3 MPS PO Potato MPS 0 Table 6.3 MPS AMC All MPS commodtes, sub-total 195 Sum of MPS of All MPS commodtes MPS C Market Prce Support 268 MPS AMC / VP AMC * VP c [6.2] 256. The extrapolaton procedure nvolves measurement bas, because t mples that for commodtes for whch MPS s not explctly calculated the rato of ther aggregate MPS to ther THE PSE MANUAL OECD

100 CHAPTER 6: CALCULATING INDICATORS OF SUPPORT TO PRODUCERS aggregate value of producton s the same as for the commodtes for whch MPS s calculated. If the latter commodtes are supported to a hgher degree than the non-mps commodtes ths would result n an over-estmaton of the aggregate (natonal) MPS, whle f the MPS commodtes are supported to a lesser degree that the non-mps commodtes, the opposte would be true. As noted earler, n order to reduce the error nvolved n the extrapolaton procedure, t s mportant to ensure that the MPS commodtes make up a suffcent share of the total country s agrcultural producton MPS for other commodtes 257. To standardse the presentaton of support ndcators for ndvdual commodtes, the OECD presents the estmated MPS values for each of the standard MPS commodtes and the resdual s shown as MPS for other commodtes (MPS OC ). 18 Ths s done n order to make the MPS OC comparable between countres. It s found by subtractng the value of MPS for the standard commodtes from the natonal (aggregate) MPS: MPS MPS MPS [6.3] where: OC MPS OC MPS C SMC C SMC total value of MPS for commodtes other than standard MPS commodtes natonal (aggregate) MPS for country C MPS sum of MPS for the standard MPS commodtes (SMC) To assst wth the calculaton of the producer SCT, an aggregate MPS value for non-mps commodtes (MPS XE ) s also calculated. It s found by subtractng the value of MPS for all MPS commodtes from the natonal (aggregate) MPS: MPS MPS MPS [6.4] where: XE MPS XE MPS C AMC C AMC total value of MPS for non-mps commodtes natonal (aggregate) MPS for country C MPS sum of MPS for all MPS commodtes 258. These two calculatons are shown n Table Those standard commodtes for whch MPS s not calculated are ndcated by a nc symbol whle those commodtes for whom MPS s estmated to be zero are shown as THE PSE MANUAL OECD 2010

101 Chapter 6. Calculatng Indcators of Support to Producers Table 6.6. Calculaton of MPS for Other Commodtes (example) Symbol Descrpton LC mllon Source / equaton MPS C Market Prce Support, natonal aggregate 268 Table 6.5 MPS SMC MPS for Standard MPS commodtes 177 Table 6.5 MPS OC MPS for Other commodtes 90 MPS C - MPS SMC MPS AMC MPS for All MPS commodtes 195 Table 6.5 MPS XE MPS for Non-MPS commodtes 72 MPS C - MPS AMC 6.2. Producer Support Estmate (PSE) Producer Support Estmate (PSE): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polces that support agrculture, regardless of ther nature, objectves or mpacts on farm producton or ncome. PSE values are calculated by addng to the MPS the value of transfers to producers from other polces To calculate the PSE for a country, the value of transfers to producers from other agrcultural polces s added to the country (aggregate) MPS obtaned n Secton 6.1: PSEC MPSC BOT PSE( sub) Category [6.5] where: PSE C MPS C BOT PSE for country C natonal (aggregate) MPS for country C aggregate budgetary and other transfers to producers from polces for country C PSE ( sub) Category sum of PSE (sub)categores to whch polces are classfed from A to G To ensure transparency and to assst wth the calculaton of other ndcators, the name of each polcy measure and the resultng value of transfer are lsted under the PSE categores and subcategores to whch they have been classfed accordng to the process set out n secton 3.3 (Table 6.7). A selecton of the polcy measures dscussed n sub-secton as worked examples are used here to llustrate. A broad polcy measure s lsted more than once when transfers relate to dfferent commodtes or when groups of commodtes can be dentfed, e.g. Agrcultural Stablzaton Act and crop nsurance payments. THE PSE MANUAL OECD

102 CHAPTER 6: CALCULATING INDICATORS OF SUPPORT TO PRODUCERS Table 6.7. Calculaton of PSE (example) Descrpton LC mllon Source / equaton Producer Support Estmate (PSE) 684 A.1 + (A.2 + B + C + D + E + F + G) A. Support based on commodty outputs 324 A.1 + A.2 A1. Market Prce Support (MPS) 268 Table 6.5 A2. Payments based on output 56 Sum of payments n A.2 Agrcultural Stablzaton Act - Wheat 10 Data Agrcultural Stablzaton Act - Mlk 20 Data Agrcultural Stablzaton Act - Other crops 10 Data Loan defcency payments 6 Data Mlk Prce Supplement for Cheese Producton 10 Data B. Payments based on nput use 105 B.1 + B.2 + B.3 B1. Varable nput use 25 Sum of payments n B.1 Fuel tax rebates 10 Data Irrgaton mantenance payments 15 Data B2. Fxed captal formaton 60 Sum of payments n B.2 Property tax exemptons 15 Data Interest rate concesson 30 Data Captal grants for on-farm nfrastructure 15 Data B3. On-farm servces 20 Sum of payments n B.3 Extenson and advsory servces 10 Data Pest and dsease control 5 Data FarmBs 5 Data C. Payments based on current A/An/R/I, 70 C.1 + C.2 producton requred C1. Based on current revenue/ncome 15 Sum of payments n C.1 Income tax concessons 15 Data C2. Based on current area/anmal numbers 55 Sum of payments n C.2 Crop nsurance payments - Wheat 10 Data Crop nsurance payments - Barley 5 Data Crop nsurance payments - Oats 5 Data Organc crop farmng 30 Data Agr-envronmental grass premum 5 Data D. Payments based on non-current A/An/R/I, 50 Sum of payments n D producton requred Structural payment to mlk producers 50 Data E. Payments based on non-current A/An/R/I, 110 E.1 + E.2 producton not requred E1. Varable rates 60 Sum of payments n E.1 Counter Cyclcal Payments 60 Data E2. Fxed rates 50 Sum of payments n E.2 Sngle Payment Scheme 50 Data F. Payments based on non-commodty crtera 25 F.1 + F.2 + F.3 F1. long-term resource retrement 15 Sum of payments n F.1 Afforestaton 5 Data Conservaton Reserve Program 10 Data F2. a specfc non-commodty output 10 Sum of payments n F.2 Payments for Hedges and Rustc Groves 5 Data Payments for Floral Fallow 5 Data F3. other non-commodty crtera 0 Sum of payments n F.3 G. Mscellaneous payments 0 Sum of payments n G 100 THE PSE MANUAL OECD 2010

103 Chapter 6. Calculatng Indcators of Support to Producers 6.3. Percentage PSE (%PSE) and Producer Nomnal Assstance Coeffcent (producer NAC) Percentage PSE (%PSE): PSE as a share of gross farm recepts. Producer Nomnal Assstance Coeffcent (producer NAC): the rato between the value of gross farm recepts (ncludng support) and gross farm recepts valued at border prces (measured at farm gate) The %PSE s calculated by dvdng the PSE by the value of gross farm recepts (GFR), and multplyng the result by 100: PSEC PSEC % PSE C [6.6] GFR VP BOT C C C 262. GFR represents the value of producton (VP), to whch are added Budgetary and Other Transfers (BOT). Workng through ths formula n the example results n a %PSE of 25% (Table 6.8). Table 6.8. Calculaton of PSE and Producer NAC (example) Symbol Descrpton Unts Value Source / equaton VP C Total value of producton (at farm gate) LC mllon Table 6.5 PSE C Producer Support Estmate LC mllon 684 Table 6.7 MPS C Market Prce Support LC mllon 268 Table 6.7 BOT C Budgetary and Other Transfers to Producers LC mllon 416 Table 6.7 (A2+B+C+D+E+F+G) GFR C Gross Farm Recepts LC mllon VP C + BOT C %PSE C Percentage Producer Support Estmate % * PSE C / GFR C Producer NAC C Producer Nomnal Assstance Coeffcent Rato 1.33 GFR C / (VP C - MPS C ) or 1 + %PSE C / (100 - %PSE C ) 263. The producer NAC s calculated by dvdng the value of gross farm recepts by the value of producton at border prces. Expressed algebracally: producernac GFR C C [6.7] VPC MPS C 264. The value of producton at border prces s obtaned by subtractng the value of MPS from the total value of producton, e.g. LC mllon n the example. The producer NAC s mathematcally related to the %PSE, and can be alternatvely derved as: producernac % PSE C C 1 [6.8] 100 % PSEC 265. Workng through ths formula n the example results n a producer NAC of THE PSE MANUAL OECD

104 CHAPTER 6: CALCULATING INDICATORS OF SUPPORT TO PRODUCERS 6.4. Indcators of producer support based on the degree of commodty specfcty The PSE can expressed as the sum of four mutually exclusve category ndcators of support transfers, relatng respectvely to a sngle commodty (SCT), a group of commodtes (GCT), all commodtes (ACT), and whether commodty producton s not requred (OTP) The PSE can be broken down nto four separate ndcators of support based on the degree to whch polcy measures delver support on a commodty bass:.e. support provded to a sngle commodty, a group of commodtes, all commodtes, or whether producers are not requred to produce commodtes to receve support (Table 6.9). Table 6.9. Indcators of producer support based on the degree of commodty specfcty Indcator I. Producer Sngle Commodty Transfers (producer SCT) Relatonshp wth PSE categores Sum of all sngle commodty transfers n PSE categores A, B, C and D Commodty (1 to n) (producer SCT ) 1 - Includes only specfc polcy measures for commodty II. Group Commodty Transfers (GCT) Group k (1 to m) (GCT k) Sum of transfers to groups of commodtes n PSE categores B, C, and D - Includes only specfc polcy measures for group k III. All Commodty Transfers (ACT) Sum of transfers to all commodtes n PSE categores B, C, and D IV. Other Transfers to Producers (OTP) Sum of transfers n PSE categores E, F and G Total PSE (I+II+III+IV) Sum of transfers to sngle, group and all commodtes and other transfers (producer SCT+GCT+ACT+OTP) 1. For polcy measures applyng to groups of commodtes, the PSE/CSE database for each country contans complete nformaton on the lst of commodtes ncluded n groups (see also Annex 6.1) These four categores are mutually exclusve n the sense that payments ncluded n one category are not ncluded n others, e.g. transfers to wheat n the producer SCT are not ncluded n transfers to cereals as a group n the GCT category. In ths way, there are no overlaps between the categores, and they therefore add up to the total PSE The frst step n calculatng these ndcators s to attrbute each polcy measure to one of these four categores, and then wthn the producer SCT and GCT categores to specfc commodtes or groups of commodtes respectvely. Ths s part of the process of labellng polcy measures as detaled n sub-secton The followng four sub-sectons explan further detals about these ndcators Table 6.10 shows how ths attrbuton s made for polcy measures n the example. The two letter symbol n the column ttled Sngle commodty ndcates the commodty to whch support s provded. These are polces whereby recept of the transfer requres the producton of that desgnated commodty. MPS s by defnton ncluded n the producer SCT, as t captures the transfers assocated wth polces affectng the prce of a partcular commodty. The label AC s gven to polcy measures whch place no restrctons on the commodty produced but requre the recpent to produce some commodty of ther choce. Polcy measures n the last three PSE categores (E, F and G) are labelled OTP because by defnton these provde transfers that ether do not requre commodty producton or ther commodty specfcty s unknown. 102 THE PSE MANUAL OECD 2010

105 Chapter 6. Calculatng Indcators of Support to Producers Table Attrbuton of PSE polces to commodtes (example) Descrpton All transfers Sngle commodty (SCT) LC mllon Acronym LC mllon Group name Attrbuton to commodtes Group of commodtes (GCT) Acronym All commodtes (ACT) Other transfers to producers (OTP) LC mllon Acronym LC mllon Acronym LC mllon Producer Support Estmate (PSE) A. Support based on commodty outputs A1. Market prce support MPS commodtes Wheat MPS 23 WT Barley MPS 7 BA Oats MPS 0 OA Mlk MPS 117 MK Beef and veal MPS 31 BF Cotton MPS 18 CT Potato MPS 0 PO Non-MPS commodtes 72 XE A2. Payments based on output Agrcultural Stablzaton Act - wheat 10 WT Agrcultural Stablzaton Act - mlk 20 MK Agrcultural Stablzaton Act - other crops 10 XE Loan deffcency payment - wheat 6 WT Mlk Prce Supplement for Cheese Producton 10 MK B. Payments based on nput use B1. Varable nput use Fuel tax rebates AC Irrgaton mantenance payments AC B2. Fxed captal formaton Property tax exemptons AC Interest rate concesson AC Captal grants for on-farm nfrastructure AC B3. On-farm servces Extenson and advsory servces AC Pest and dsease control AC FarmBs AC C. Payments based on current A/An/R/I, producton requred C1. Based on current revenue/ncome Income tax concessons AC C2. Based on area/anmal numbers Crop nsurance payments - wheat 10 WT Crop nsurance payments - barley 5 BA Crop nsurance payments - oats 5 OA Organc crop farmng Crops GCT Agr-envronmental grass premum Other crops GCT D. Payments based on non-current A/An/R/I, producton requred Structural payment to mlk producers 50 MK E. Payments based on non-current A/An/R/I, producton not requred E1. Varable rates Counter cyclcal payments OT 60 E2. Fxed rates Sngle Payment Scheme OT 50 F. Payments based on non-commodty crtera F1. Long-term resource retrement Afforestaton OT 5 Conservaton reserve program OT 10 F2. A specfc non-commodty output Payments for hedges and rustc groves OT 5 Payments for floral fallow OT 5 F3. Other non-commodty crtera G. Mscellaneous payments THE PSE MANUAL OECD

106 CHAPTER 6: CALCULATING INDICATORS OF SUPPORT TO PRODUCERS Producer Sngle Commodty Transfers (producer SCT) Producer Sngle Commodty Transfers (producer SCT): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polces lnked to the producton of a sngle commodty such that the producer must produce the desgnated commodty n order to receve the transfer A natonal (aggregate) producer SCT can be found by summng up all transfers arsng from polces that have been attrbuted to sngle commodtes (SC): producersc T MPS BOT [6.9] C C SC where: BOT natonal aggregate budgetary and other transfers to producers from polces that have been labelled as based on a sngle commodty (SC) Ths s general the sum of all transfers n category A, plus transfers n categores C, B and D labelled as gong to sngle commodtes. Based on Table 6.10, the value of producer SCT s LC 394 mllon. Note that ths total ncludes LC 72 mllon of transfers to commodtes other than MPS commodtes (XE) On a smlar bass, a producer SCT can be calculated for ndvdual commodtes (Table 6.11): producersc T MPS BOT [6.10] where: BOT budgetary and other transfers to producers from polces that have been labelled as based on commodty 273. As for MPS, a producer SCT for other commodtes (representng commodtes other than standard MPS commodtes) can be found by subtractng the sum of producer SCT for the standard MPS commodtes from the natonal (aggregate) value: producersc T producersct producersct [6.11] OC C SMC where: producersc T sum of transfers to producers for the standard MPS commodtes SMC 104 THE PSE MANUAL OECD 2010

107 Chapter 6. Calculatng Indcators of Support to Producers Table Calculaton of producer SCT (example) Symbol Descrpton Standard MPS Other Natonal Source / equaton Wheat Barley Oats Mlk Beef Cotton Potatoes commodtes commodtes (aggregate) (SMC) (OC) (C) MPS A1. Market prce support Table 6.3 PO A2. Payments based on output Table 6.10 (Sum of PO for sngle commodtes) PO 1 Agrcultural Stablzaton Act Table 6.10 PO 2 Storage Payments Table 6.10 PO 3 Mlk Prce Supplement for Cheese Producton Table 6.10 PI B. Payments based on nput use Table 6.10 PC C2. Payments based on current A/An, producton requred, sngle commodty Table 6.10 (Sum of PC for sngle commodtes) PS 1 Crop nsurance payments Table 6.10 PHR D. Payments based on non-current A/An/R/I, producton requred LC mllon Table 6.10 (Sum of PHR for sngle commodtes) PHR 1 Structural payment to mlk producers Table 6.10 Producer SCT Producer Sngle Commodty Transfers MPS + PO + PI + PC + PHR THE PSE MANUAL OECD

108 CHAPTER 6: CALCULATING INDICATORS OF SUPPORT TO PRODUCERS Group Commodty Transfers (GCT) Group Commodty Transfers (GCT): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polces whose payments are made on the bass that one or more of a desgnated lst of commodtes s produced,.e. a producer may produce from a set of allowable commodtes and receve a transfer that does not vary wth respect to ths decson The value of Group Commodty Transfers for a country s calculated by addng together the value of transfers that have been attrbuted to groups of commodtes: GCT BOT [6.12] C GCT where: BOT GCT aggregate budgetary and other transfers to producers from polces 275. Based on Table 6.10, ths comes to LC 35 mllon. that have been labelled as based on a group of commodtes (GCT) 276. On a smlar bass, a GCT k can be calculated for specfc groups of commodtes, where: GCT BOT [6.13] k k where: BOT k budgetary and other transfers to producers from polces that have been labelled as based on a commodty group k There are nne standard commodty groups (Table 6.12). If the polcy measure s targetng a group of commodtes not covered by any of these nne groups, an addtonal group may be created to reflect actual support polces. Detaled country lsts of commodty groups ncluded n the GCT are provded n Annex 6.1. Transfers allocated to the dfferent groups wthn the GCT are mutually exclusve, e.g. transfers to the grans group are not ncluded n transfers to a grans and olseeds group. 106 THE PSE MANUAL OECD 2010

109 Chapter 6. Calculatng Indcators of Support to Producers Table Calculaton of GCT (example) Symbol Group Commodty Transfers (GCT) LC mllon Share of natonal (aggregate) GCT % GCT 1 All crops GCT 2 All arable crops 0 0 GCT 3 Grans 0 0 GCT 4 Olseeds 0 0 GCT 5 Other crops 5 14 GCT 6 All fruts and vegetables 0 0 GCT 7 All lvestock 0 0 GCT 8 Rumnants 0 0 GCT 9 Non-rumnants 0 0 GCT 10 Non-standard commodty group n 0 0 GCT 11 Non-standard commodty group m 0 0 GCT C Natonal (aggregate) GCT Table 6.12 llustrates the allocaton of transfers to the dfferent groups based on the attrbuton done n Table In ths case, all the polcy measures are targeted to the standard groups, so that no addtonal groups are requred All Commodty Transfers (ACT) All Commodty Transfers (ACT): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polces that place no restrctons on the commodty produced but requre the recpent to produce some commodty of ther choce The value of All Commodty Transfers for a country s calculated by addng together the value of transfers that have been attrbuted to all commodtes (AC): ACT BOT [6.14] C AC where: BOT AC aggregate budgetary and other transfers to producers from polces that have been labelled as based on all commodtes (AC) 280. Table 6.10 shows that there were nne polces attrbuted to ACT. Summng up the value of transfers from these seven polces gves an ACT estmate of LC 120. THE PSE MANUAL OECD

110 CHAPTER 6: CALCULATING INDICATORS OF SUPPORT TO PRODUCERS Other Transfers to Producers (OTP) Other Transfers to Producers (OTP): the annual monetary value of gross transfers from consumers and taxpayers to agrcultural producers, measured at the farm gate level, arsng from polces that do not requre any commodty producton at all Other transfers to producers are calculated by summng together the total values of transfers from polces that are classfed nto the PSE categores E, F and G. OTP C PSEcategory ( E) PSEcategory ( F) PSEcategory ( G) [6.15] 282. In the example, there are sx such polces, provdng LC 135 mllon n support to producers Producer Nomnal Protecton Coeffcent (producer NPC) Producer Nomnal Protecton Coeffcent (producer NPC): the rato between the average prce receved by producers at the farm gate (ncludng payments per tonne of current output), and the border prce, measured at the farm gate. Producer NPC values may be calculated at the ndvdual commodty and natonal (aggregate) levels The producer NPC ndcator s calculated at the ndvdual commodty and natonal (aggregate) level Producer NPC for ndvdual commodtes 284. The producer NPC for an ndvdual commodty can be derved n two ways. Frst, domestc and border prces can be compared, where the domestc prce s the producer prce plus the per unt transfers receved from payments based on output: producernpc PO PP QP [6.16] RP where: PP producer prce of commodty PO sum of payments to commodty based on output (PSE sub-category A.2) QP quantty produced of commodty RP reference prce of commodty 285. The numerator n equaton 6.16 adds the payments based on output to producer prce n order to account for any drect supplements to producer prce over and above market prce support measures. Table 6.13 llustrates the calculaton of producer NPC for ndvdual commodtes. Producer NPC values for ndvdual commodtes vary from 1.59 for mlk to 1.00 n for oats and potatoes. 108 THE PSE MANUAL OECD 2010

111 Chapter 6. Calculatng Indcators of Support to Producers Producer NPC for a country 286. Once producer NPC values have been calculated for each ndvdual commodty, a natonal (aggregate) NPC can be derved. As prces and quanttes cannot be aggregated for dfferent commodtes, the producer NPC for a country s calculated usng the value of transfers: producernpc where: VP C PO C VP PO C C C [6.17] VPC TPC C TPT C total value of producton for country C total sum of transfers n PSE sub-category A.2 for country C TPC C total Transfers to Producers from Consumers for country C TPT C total Transfers to Producers from Taxpayers for country C 287. Whle the VP and PO values are known at the natonal level, values for TPC and TPT have to be calculated. Followng the assumpton and procedure for dervng a natonal (aggregate) MPS, these values are derved by extrapolatng from TPC and TPT for the ndvdual commodtes accordng to: TPC C AMC TPC VP VPC and TPT AMC where: TPC AMC AMC AMC TPT VP C AMC AMC TPT VPC VP [6.18] sum of TPC for all commodtes for whch MPS has been calculated sum of TPT for all commodtes for whch MPS has been calculated sum of VP for all commodtes for whch MPS has been calculated 288. Table 6.14 shows the calculaton of a natonal (aggregate) producer NPC, whch at 1.20 s exactly the same as the aggregate producer NPC for All MPS commodtes The producer NPC for ndvdual commodtes can also be calculated based on the transfer values method, by substtutng the approprate values for the ndvdual commodty nto equaton THE PSE MANUAL OECD

112 Chapter 6: Calculatng Indcators of Support to Producers Table Calculaton of producer NPC for ndvdual commodtes (example) Symbol Descrpton Unts Wheat Barley Oats Mlk Beef Cotton Potatoes Source / equaton QP Level of producton 000 T Table 6.3 PP Producer prce (at farm gate) LC/T Table 6.3 VP Value of producton (at farm gate) LC mllon Table 6.3 RP Reference Prce (at farm gate) LC/T Table 6.3 PO A2. Payments based on output LC mllon Table 6.11 POT Payments based on output per tonne LC/T PO / QP TPC Transfers to producers from consumers LC mllon Table 6.3 TPT Transfers to producers from taxpayers LC mllon Table 6.3 Producer NPC Producer Nomnal Protecton Coeffcent Rato (PP + POT ) / RP or (VP + PO ) / (VP - TPC - TPT ) Table Calculaton of a natonal (aggregate) producer NPC (example) Symbol Descrpton Unts All MPS commodtes (AMC) Natonal (aggregate) (C) VP Value of producton (at farm gate) LC mllon Table 6.2 Source / equaton PO A2. Payments based on output LC mllon Table 6.13 and Table 6.11 TPC Transfers to producers from consumers LC mllon TPC C = TPC AMC / VP AMC * VP C TPT Transfers to producers from taxpayers LC mllon TPT C = TPT AMC / VP AMC * VP C Producer NPC Producer Nomnal Protecton Coeffcent Rato (VP + PO ) / (VP - TPC - TPT ) 110 THE PSE MANUAL OECD 2010

113 Chapter 6. Calculatng Indcators of Support to Producers Producer NPC for other commodtes 290. As for MPS, a producer NPC for other commodtes,.e. commodtes other than standard MPS commodtes, s also calculated. Agan, ths s estmated based on the value method n equaton 6.17 rather than the prce method n equaton To obtan the necessary values for other commodtes, values for the standard MPS commodtes for whch MPS has been calculated are subtracted from the natonal (aggregate) values: ( VPC VP ) ( POC POsc ) SMC producernp C [6.19] oc ( VPC VP ) ( TPCC TPC ) ( TPTC TPT ) SMC SMC SMC 291. Table 6.15 llustrates how ths calculaton s performed. Note that n ths nstance the producer NPC for other commodtes s lower than the natonal (aggregate) producer NPC because the producer NPC derved for the standard commodtes s hgher than that for natonal average Percentage Producer Sngle Commodty Transfers (%SCT) Percentage Producer Sngle Commodty Transfers (%SCT): the commodty SCT transfers as a share of gross recepts for the specfc commodty. %SCT values may be calculated for ndvdual commodtes, and at natonal (aggregate) level The general method for calculatng the %SCT follows that for the %PSE, although fewer categores of support are nvolved n the calculaton %SCT for ndvdual commodtes 293. The %SCT for an ndvdual commodty s found by dvdng the value of producer SCT for that commodty by gross recepts (GR) for that commodty and multplyng the result by 100: producersct producersct % SCT [6.20] GR VP producersct MPS 294. GR s calculated as the sum of market recepts (VP) and polcy transfers to that commodty. As for the %PSE, MPS s subtracted to avod double-countng, snce prce transfers to producers are ncluded n both the producer SCT and VP values Table 6.16 demonstrates ths procedure. %SCT values range from 0% for potatoes through to 41% for mlk. Note that oats, whch had a producer NPC of 1.00 because t does not receve transfers through market prce support or payments based on output, receves support through sub-category C.2. Payments based on A/An, producton requred and therefore has a %SCT of 9%. THE PSE MANUAL OECD

114 Chapter 6: Calculatng Indcators of Support to Producers Table Calculaton of a producer NPC for Other Commodtes (example) Symbol Descrpton Unts Natonal (aggregate) (C) Standard MPS commodtes (SMC) Other commodtes (OC) VP Value of producton (at farm gate) LC mllon PO A2. Payments based on output LC mllon Table 6.11 Source / equaton VP C and VP SMC: Table 6.2 VP OC = VP C - VP SMC TPC Transfers to producers from consumers LC mllon TPC C and TPC SMC: Tables 6.13 and 6.14 TPC OC = TPC C - TPC SMC TPT Transfers to producers from taxpayers LC mllon TPT C and TPT SMC: Tables 6.13 and 6.14 TPT OC = TPT C - TPT SMC Producer NPC Producer Nomnal Protecton Coeffcent Rato (VP + PO )/(VP - TPC - TPT ) Table Calculaton of %SCT for ndvdual commodtes (example) Symbol Descrpton Unts Wheat Barley Oats Mlk Beef Cotton Potatoes Source / equaton VP Value of producton LC mllon Table 6.3 PSCT Producer Sngle Commodty Transfers LC mllon Table 6.11 MPS A1. Market Prce Support LC mllon Table 6.3 PO A2. Payments based on output LC mllon Table 6.11 PI B. Payments based on nput use LC mllon Table 6.11 PC C2. Payments based on current A/An, producton requred (sngle commodty) LC mllon Table 6.11 PHR D. Payments based on non-current A/An/R/I, producton requred (sngle commodty) LC mllon Table 6.11 GR Gross Recepts for ndvdual commodty LC mllon VP + (PSCT - MPS ) %PSCT Percentage Producer Sngle Commodty Transfer % * PSCT / GR or 100 * PSCT / (PSCT + VP - MPS ) 112 THE PSE MANUAL OECD 2010

115 Chapter 6. Calculatng Indcators of Support to Producers Table Calculaton of a natonal (aggregate) %SCT and a %SCT for Other Commodtes (example) Symbol Descrpton Unts Natonal (aggregate) (C) Standard MPS commodtes (SMC) Other commodtes (OC) Source / equaton VP Value of producton LC mllon VP C and VP SMC : Table 6.2 VP OC = VP C - VP SMC PSCT Producer Sngle Commodty Transfers LC mllon Table 6.11 MPS A1. Market Prce Support LC mllon Table 6.11 PO A2. Payments based on output LC mllon Table 6.11 PI B. Payments based on nput use LC mllon Table 6.11 PC C2. Payments based on current A/An, producton LC mllon Table 6.11 PHR requred (sngle commodty) D. Payments based on non-current A/An/R/I, LC mllon Table 6.11 producton requred (sngle commodty) GR Gross recepts LC mllon GR C = VP C + PSCT C - MPS C GR SMC = VP SMC + PSCT SMC - MPS SMC GR OC = GR C - GR SMC %PSCT Percentage Producer Sngle Commodty Transfer % * PSCT = PSCT / GR or 100 * PSCT / (PSCT + VP - MPS) THE PSE MANUAL OECD

116 Chapter 6: Calculatng Indcators of Support to Producers %SCT for a country 296. A natonal (aggregate) %SCT s obtaned usng the same formulas as for ndvdual commodtes except that the values represent the natonal (aggregate) values: producersct C producersct C % SCT C [6.21] GR VP producersct MPS 297. Table 6.17 presents the results for ths calculaton %SCT for other commodtes C C 298. As for the producer NPC, the %SCT for other commodtes can be found by usng the producer SCT and GR values for the standard MPS commodtes and for the country as a whole: ( producersct C producersct ) SMC % SCT oc ( GR GR ) 100 [6.22] C SMC 299. Table 6.17 also shows the calculaton of the %Producer SCT for other commodtes. C C 114 THE PSE MANUAL OECD 2010

117 Chapter 6. Calculatng Indcators of Support to Producers Annex 6.1. Commodty groups appled n estmates for OECD countres 300. Ths annex, sourced from Agrcultural Polces n OECD Countres: Montorng and Evaluaton 2007, provdes llustratve nformaton on the commodty groups dentfed n OECD countres. Ths groupng s based on a common (generc) set of groups whch are most commonly found n the polces appled wthn OECD countres, but leaves flexblty to reflect specfc natonal polcy mxes. The generc groups are treated as a menu. The selecton of groups for a country should provde an opportunty to categorse all programmes summed up as transfers to groups of products, and may vary from year to year as new programmes are added and contnung programmes may be modfed. The Secretarat wll contnue to mprove the consstency of the groups used n the dfferent countres,.e. the same group name should have the same meanng n terms of commodtes covered. Australa 301. Four dfferent commodty groups have been defned for Australa, based on the polces n place over the perod startng n These are: All crops: ncludes mostly dsaster payments and weed strategy payments; Fruts and vegetables: dsease control and eradcaton payments; All lvestock: payments related to anmal dentfcaton and control and dsease control and eradcaton; Rumnants: dsease control and eradcaton payments. Canada 302. Three dfferent commodty groups have been defned for Canada, based on the polces n place over the perod startng n These are: All crops: ncludes any polcy that s avalable to producers of any gran or olseed crop. All lvestock: ncludes polces drected at producers of lvestock, ncludng cattle, pgs, dary, and poultry. Some examples are the BSE Recovery Program (2003), and the Feed Freght Assstance Program (untl 1995). All commodtes except supply managed: ncludes Canada s major agrcultural support polces, ncludng the stablsaton component of the Canadan Agrcultural Income Stablsaton (CAIS) programme (started 2003) and the Net Income Stablzaton Account (NISA) programme ( ). THE PSE MANUAL OECD

118 Chapter 6: Calculatng Indcators of Support to Producers European Unon 303. Twelve dfferent commodty groups have been defned for the EU, based on the polces n place over the perod startng n These commodty groups are: All crops: ncludes any polcy that s avalable to producers of any crop, such as measures for rrgaton, pest control or envronmentally frendly crop farmng. All arable crops: ncludes any polcy that s avalable to producers of any crop. Ths group s only used for measures such as payments for crop rotaton, as most area payments under Agenda 2000 were restrcted to COP (see below). Cereals, olseeds and proten crops (COP): ncludes any polcy that s avalable to producers of any COP crop, such as set-asde payments and Agenda 2000 area payments after Grans: ncludes payments per hectare of cereals, wth a rate per ha for any cereal dfferent from that for olseeds or proten crops. They were ntroduced by the 1992 reform. In 2004, these payments became part of the COP group. Olseeds: ncludes payments per hectare of olseeds, wth a rate per ha for any olseed dfferent from that for cereals or proten crops. Proten crops: ncludes payments per hectare of proten crops, wth a rate per ha for any proten crops dfferent from that for cereals or olseeds. All fruts and vegetables: ncludes measures for the whole frut and vegetable sector, such as measures for orchard mprovement. Other crops: ncludes payments to crops other than COP, ncludng grass and forage crops. All lvestock: ncludes polces drected at producers of lvestock, ncludng cattle, pgs, dary, and poultry. Examples are measures for dsease control, breedng mprovement, compensatng losses or manure handlng, as well as some regonal payments. Rumnants: ncludes payments for beef, sheep and goats such as less-favoured area payments before 2000, whch were pad per lvestock unt. Non-rumnants: No payment s made specfcally to non-rumnants n EU member states. Mlk and beef: ncludes payments to the dary sector, whch cannot be assocated to ether mlk producton of meat producton, such as nvestments n stables. Iceland 304. Two dfferent commodty groups have been defned for Iceland, based on the polces n place over the perod startng n These commodty groups are: All lvestock: ncludes polces drected at producers of lvestock, ncludng cattle, pgs, dary, and poultry. An example s the anmal breedng programme. Rumnants: ncludes polces drected at producers of cattle, dary and sheepmeat. 116 THE PSE MANUAL OECD 2010

119 Chapter 6. Calculatng Indcators of Support to Producers Japan 305. Four dfferent commodty groups have been defned for Japan, based on the polces n place over the perod startng n These commodty groups are: All crops: ncludes polces drected to producers of any crops. Ths transfer ncludes drect payment for envronmentally frendly farmng. All arable crops: ncludes drect (ncome based) payments to core farmers. Lvestock: ncludes polcy drected at producers of lvestock, ncludng cattle, pgs, dary, and poultry. Anmal dsease control programme s an example. Wheat, barley and soybeans: ncludes polcy that s avalable to producers of wheat, barley and soybeans. Korea 306. Four dfferent commodty groups have been defned for Korea, based on the polces n place over the perod startng n These commodty groups are: All crops: ncludes any polcy that s avalable to producers of any crop. Ths set of transfers ncludes payments based on nput use such as fertlzer, seeds and pestcdes. In more recent years (startng from 1999), ths group ncludes also payments for set-asde, drect payment for envronment-frendly farmng practces, paddy-feld envronmental conservaton payment and drect payment for landscape preservaton. All lvestock: ncludes polces drected at producers of lvestock, ncludng cattle, pgs, dary, and poultry. The transfers n ths category nclude three programmes: drect payment for envronmentally-frendly lvestock practces, payments for management of lvestock waste, and credt concessons to lvestock farmers. Beef and pgmeat: ncludes payments n the meat qualty enhancement programme. It s the payments per head of anmal to encourage good qualty beef and pgmeat. Beef and mlk: ncludes payments n the cattle reproducton programme whch ncludes artfcal nsemnaton. Mexco 307. Three man commodty groups have been defned for Mexco, based on the polces n place over the perod startng n These commodty groups are: All crops: ncludes any polcy that s avalable to producers of any gran or olseed crop. Most of the polces n ths group belong to ALIANZA. Grans: ncludes only a sngle program of ALIANZA on techncal assstance, whch ended n THE PSE MANUAL OECD

120 Chapter 6: Calculatng Indcators of Support to Producers All lvestock: group ncludes polces drected at producers of lvestock, ncludng cattle, pgs, dary, and poultry. Some examples are ALIANZA programs such as the Lvestock Improvement, and the Genetc Improvement. Several smaller groups of commodtes emerged, such as Maze and beans, Fruts, Sorghum, maze and olseeds, Alternatve crops, Ctruses and frut, flowers, ndustral crops, and alternatve crops. Some of these payments are sub-natonal under ALIANZA. None of these payments have been provded recently New Zealand 308. Two dfferent commodty groups have been defned for New Zealand, based on the polces n place over the perod startng n These commodty groups are: All lvestock: ncludes the payments on anmal dsease control programmes that seek to safeguard the health of the agrcultural anmal populaton. These programmes nclude export qualty assurance for lve anmals, the reducton of producton-lmtng dseases, dsease survellance and dsease eradcaton. Ths payment represented 100% of GCT snce 1993, when the payments for the other group (sheepmeat, wool, beef and mlk) were completely stopped. Sheepmeat, wool, beef and mlk: ncludes polces drected at producers of sheep and cattle. The transfers n ths category represent payments n seven programmes; labour subsdy programme, fertlzer prce subsdy programme, lvestock ncentve scheme, land development and encouragement loan scheme, nterest concesson programme from the rural bank and fnance corporaton, debt dscountng wrte-off programme from the rural bank and fnance corporaton, the debt wrte-off programme for producer boards. The payments for ths category were completely stopped n 1992 as the reform of these sectors was accomplshed. Norway 309. Sx dfferent commodty groups have been defned for Norway, based on the polces n place over the perod startng n The man commodty groups are: Grans: ncludes payments based on output, payments per hectare of grans, transport subsdes, and regonal subsdes. All fruts and vegetables: ncludes support for energy savng n greenhouses, nvestment support for greenhouses and storehouses and packagng of hortcultural products, and varous area payments for potatoes, vegetables, fruts and berres. All lvestock: ncludes payments to producers of lvestock, ncludng cattle, pgs, dary, and poultry. Examples are defcency payments, headage payments, and the vacaton and temporary substtute scheme for lvestock producers, as well as some regonal payments. Rumnants: ncludes per head payments for grazng anmals. Tubers: ncludes varous payments to root crops, ncludng under the acreage and cultural landscape scheme. 118 THE PSE MANUAL OECD 2010

121 Chapter 6. Calculatng Indcators of Support to Producers Feed crops: ncludes all subsdes to coarse feed, ncludng acreage support to mountan farmng, and support to meadow seed storage. Swtzerland 310. Eght dfferent commodty groups have been defned for Swtzerland, based on the polces n place over the perod startng n 1986 (6 of them were used n ). These commodty groups are: All lvestock: Ths set of transfers ncludes polces that are avalable to lvestock rased n dffcult condtons (lvestock n mountan areas, ; lvestock n dffcult condtons, ). At a later stage ths group ncludes also payments for anmal welfare (payments for anmal housng systems, from 1996; payments for keepng anmal outdoors, from 1999). Rumnants: The transfers n the category represent payments of two programmes base area payment for grassland ( ) and payments for roughage eatng anmals (from 1999). The programme conssts of headage payments avalable to all producers for rumnants (beef, sheep and goats, horses, lamas, alpagas, etc.). All crops: ncludes any polcy that s avalable to producers of any crop. Ths set of transfers ncludes payments based on nput use such as fertlzer, seeds and pestcdes. However, the most mportant part of transfers wthn ths group was the payments for ntegrated producton ( ). Arable crops: transfers to ths group are manly the base area payment to arable land appled n the perod. Grans: ncludes manly the base premum for coarse grans ( ), relatvely small amounts of payments were for extensve producton of grans ( ). Olseeds: Area payments for olseeds (from 1999). Grans and olseeds: Area payments for extensve grans and rapeseed cultvaton (from 1999). All crops except wne: Payments for crop producton on steep slopes. Turkey 311. Sx dfferent commodty groups have been dentfed for Turkey, based on the polces n place over the perod startng n All Crops: prmarly ncludes support for nput use, such as fertlser subsdes, pestcde subsdes, hybrd seed subsdes and support for natural dsasters. Grans: ncludes area feed crops premum. All Lvestock: ncludes transfers to lvestock producers n the form of nput support, such as support for feed, captal grants, lvestock replacement and control of dsease. THE PSE MANUAL OECD

122 Chapter 6: Calculatng Indcators of Support to Producers Mlk, beef and sheepmeat: ncludes support to producers of cattle, dary and sheep for anmal replacement due to natural dsasters through the Lvestock Replacement Programme and for pasture mprovement. Wheat, Sugar, Cotton, Sunflower: ncludes payments under the On-Farm Development Support Programme. Hazelnuts and tobacco: ncludes payments under the Transton Programme. Unted States 312. There are fve dfferent commodty groups, based on the polces n place over the perod startng n 1986: All Crops: prmarly ncludes payments for envronmental conservaton and protecton purposes. Examples of programmes n ths group nclude the Conservaton Securty Program and Crop Dsaster Payments Program. All Non-nsured Crops: It ncludes payments under the Non-nsured Crop dsaster Assstance Program. Rumnants: Ths ncludes support to producers of cattle, dary and sheep under the Feed Assstance Program and the Grassland Reserve Program. All Lvestock: It ncludes payments under the Lvestock Indemnty Program Trees and vneyards: ncludes payments under the Tree and Vneyard Dsaster Payments Program. 120 THE PSE MANUAL OECD 2010

123 Chapter 7. Calculatng Indcators of Support to Consumers CHAPTER 7. CALCULATING INDICATORS OF SUPPORT TO CONSUMERS 313. In a smlar way to Chapter 6, ths chapter detals the method for brngng the relevant transfers together to calculate the ndcators of consumer support. The process begns by usng the transfers calculated for Market Prce Support (MPS ) to obtan consumer sngle commodty transfers for ndvdual commodtes (consumer SCT ). These are then used to calculate a Consumer Support estmate (CSE) for the country as a whole. From these nomnal ndcators, the relatve ndcators of support can then be derved, ncludng consumer Nomnal Protecton Coeffcents for ndvdual commodtes (consumer NPC ) and a country (consumer NPC), as well as %Consumer Support Estmate (%CSE) and consumer Nomnal Assstance Coeffcent (consumer NAC). Dagram 7.1. The procedure for calculatng ndcators of support to consumers Monetary ndcators Percentage ndcators or ratos Commodty or group of commodtes level MPS consumer SCT consumer NPC Natonal level CSE %CSE and consumer NAC consumer NPC THE PSE MANUAL OECD

124 Chapter 7. Calculatng Indcators of Support to Consumers 7.1. Consumer Sngle Commodty Transfers (consumer SCT) for ndvdual commodtes Consumer Sngle Commodty Transfers (consumer SCT): the annual monetary value of gross transfers to consumers of agrcultural commodtes, measured at the farm gate level, arsng from polces lnked to the producton of a sngle commodty. Consumer SCT values are calculated for ndvdual commodtes by addng compensatory budget payments to consumers to prce transfers from consumers (PTC) 314. The process begns by calculatng a consumer SCT value for each of the ndvdual commodtes for whch MPS has been calculated n sub-secton consumersc T TCT ( TPC OTC ) EFC [7.1] where: TCT Transfers to Consumers from Taxpayers for commodty TPC Transfers to Producers from Consumers of commodty OTC Other Transfers from Consumers of commodty EFC Excess Feed Cost of commodty (crop commodtes only) 315. TCT are budgetary payments to consumers that are gven for the specfc purpose of compensatng them for the hgher prces they pay for agrcultural products that result from polces that support producer prces. An example of such transfers s subsdes to the frst purchasers of agrcultural commodtes such as mlls, dares or slaughterhouses. The TCT s obtaned from the nformaton on budgetary expendtures The sum of the other three components n equaton 7.1 corresponds to Prce Transfers from Consumers (PTC), explaned n detal n secton The nformaton and analyss used to calculate MPS n sub-secton s used as the bass for carryng out these calculatons,.e. the same values for MPD, producton, consumpton, etc. are used: n the example, the MPD s zero n the case of oats and potatoes. As for MPS, the TPC value s generally the largest component of a consumer SCT for a commodty. However, nstead of beng added as a value transferred as support to producers, t s subtracted as a value transferred away from consumers. If consumpton s greater than producton, then consumers also pay the MPD on the remanng volume of consumpton, suppled from mports (OTC) Table 7.1 demonstrates the procedure for calculatng consumer SCT for ndvdual commodtes based on the example ntroduced n Chapter 6. Note that the sum of EFC for the ndvdual commodtes (LC 22 mllon) n ths calculaton s the same as that calculated for MPS (Table 6.4), except that n ths case t s added back nto transfers from consumers rather than subtracted from transfers to producers. 122 THE PSE MANUAL OECD 2010

125 Chapter 7. Calculatng Indcators of Support to Consumers Table 7.1. Calculaton of consumer SCT for ndvdual commodtes (example) Symbol Descrpton Unts Wheat Barley Oats Mlk Beef Cotton Potatoes Source / equaton QP Level of producton 000 T Data QC Level of consumpton 000 T Data or (QP + QM - QX + STK) QC feed of whch quantty of crop consumed for feed 000 T Data MPD Market prce dfferental LC/T Table 6.2 TCT Transfer to consumers from taxpayers LC mllon Data TPC Transfers to producers from consumers LC mllon OTC Other transfers from consumers LC mllon If QC > QP then MPD *QP otherwse MPD *QC If QC > QP then MPD *(QC - QP ) otherwse 0 EFC Excess Feed Cost (for feed crops only) LC mllon MPD * QC feed Consumer SCT Consumer Sngle Commodty Transfers LC mllon TCT - (TPC + OTC ) + EFC THE PSE MANUAL OECD

126 Chapter 7. Calculatng Indcators of Support to Consumers 7.2. Consumer Support Estmate (CSE) Consumer Support Estmate (CSE): the annual monetary value of gross transfers from (to) consumers of agrcultural commodtes, measured at the farm gate level, arsng from polcy measures that support agrculture, regardless of ther nature, objectves or mpacts on consumpton of farm products. CSE values are calculated by addng all TCT values, extrapolated TPC and OTC values, and EFC values 319. Once consumer SCT values have been calculated for ndvdual commodtes, a natonal (aggregate) CSE value can be calculated by a smlar method: CSE TCT ( TPC OTC ) EFC [7.2] C C C 320. The natonal (aggregate) value of transfers to consumers from taxpayers s found by addng together the value of TCT for all the ndvdual commodtes for whch MPS has been calculated wth any addtonal TCT that are provded to consumers of non-mps commodtes, that s: TCT C TCT TCT AMC XE 321. Natonal (aggregate) values for TPC and OTC are derved by extrapolatng from TPC and OTC for the ndvdual commodtes accordng to: TPC C AMC TPC VP VPC and OTC AMC where: TPC AMC AMC AMC OTC VP C C AMC OTC VPC VP AMC TPC for All MPS commodtes OTC for All MPS commodtes value of producton for All MPS commodtes 322. The natonal (aggregate) EFC value s found by addng together the value of EFC for the ndvdual feed crop commodtes for whch MPS has been calculated: EFC C EFC AMC 323. Table 7.2 demonstrates ths procedure. [7.3] [7.4] 124 THE PSE MANUAL OECD 2010

127 Chapter 7. Calculatng Indcators of Support to Consumers Table 7.2. Calculaton of CSE (example) Symbol Descrpton LC mllon Source / equaton VP C Total value of producton (at farm gate) Table 6.2 VP AMC Value of producton of MPS commodtes Table 6.2 TCT C Transfers to consumers from taxpayers 70 TPT AMC + TPT XE TCT AMC Transfers to consumers from taxpayers for MPS commodtes 60 Table 7.1 (sum of TCT for All MPS commodtes) TCT XE Transfers to consumers from taxpayers for non-mps commodtes 10 Data TPC C Transfers to producers from consumers 310 TPC AMC / VP AMC * VP C TPC AMC Transfers to producers from consumers of MPS commodtes 226 Table 7.1 (sum of TPC for All MPS commodtes) OTC C Other transfers from consumers 95 OTC AMC / VP AMC * VP C OTC AMC Other transfers from consumers of MPS commodtes 69 Table 7.1. (sum of OTC for All MPS commodtes) EFC C Excess Feed Cost (for feed crops only) 22 Table 7.1 (sum of EFC for MPS crop commodtes) CSE Consumer Support Estmate -313 TCT C - TPC C - OTC C + EFC C THE PSE MANUAL OECD

128 Chapter 7. Calculatng Indcators of Support to Consumers 7.3. Percentage CSE (%CSE) and Consumer Nomnal Assstance Coeffcent (consumer NAC) Percentage CSE (%CSE): CSE as a share of consumpton expendture on agrcultural commodtes (at farm gate prces), net of taxpayer transfers to consumers. Consumer Nomnal Assstance Coeffcent (consumer NAC): the rato between the value of consumpton expendture on agrcultural commodtes (at farm gate prces) and that valued at border prces (measured at farm gate). %CSE and consumer NAC values are calculated at natonal (aggregate) level 324. The %CSE for a country s calculated by dvdng the CSE by the value of consumpton expendture,.e. value of consumpton less transfers to consumers from taxpayers (TCT), and multplyng the result by 100. Value of consumpton s adjusted for TCT because t effectvely reduces consumer expendture. Ths s expressed as: CSE % CSE 100 [7.5] VC C TCT C where: VC C value of consumpton n country C 325. The natonal (aggregate) value of consumpton s found by extrapolatng the sub-total value of consumpton for All MPS commodtes as follows: VC C AMC AMC where: VC AMC AMC VC VPC VP AMC ( PP QC ) VP VP AMC value of consumpton for All MPS commodtes VP value of producton for All MPS commodtes 326. The value of consumpton for an ndvdual MPS commodty s derved by multplyng the producer prce by the quantty of consumpton. It dffers from the value of producton to the extent that commodtes are mported or exported. Workng through ths formula n the example results n a %CSE of -12% (Table 7.3) 327. The consumer NAC s calculated by dvdng the value of consumpton by the value of consumpton at border prces. Expressed algebracally: C [7.6] VCC consumernac [7.7] VC CSE C 126 THE PSE MANUAL OECD 2010

129 Chapter 7. Calculatng Indcators of Support to Consumers 328. The consumer NAC s mathematcally related to the %CSE, and can be alternatvely derved as: % CSE consumernac 1 [7.8] 100 % CSE 329. Workng through ths formula n the example results n a consumer NAC of Consumer Nomnal Protecton Coeffcent (consumer NPC) Consumer Nomnal Protecton Coeffcent (consumer NPC): the rato between the average prce pad by consumers (at farm gate) and the border prce (measured at farm gate). Consumer NPC values may be calculated for ndvdual commodtes and at natonal (aggregate) level As for the producer NPC, the consumer NPC ndcator s frst calculated at the ndvdual commodty level. The results are then used to derve a natonal (aggregate) consumer NPC Consumer NPC for ndvdual commodtes 331. The consumer NPC for an ndvdual commodty s derved by comparng domestc and border prces, where the domestc prce s the consumer prce. Note that the consumer prce s equal to producer prce, whch follows from the defnton of consumer as a frst-stage buyer of agrcultural commodty. PP consumernpc [7.9] RP where: PP consumer prce of commodty RP reference prce of commodty 332. The dfference between the consumer and producer NPC s that the latter ncludes the per unt value of output support that s provded to producers through polces whch do not affect market prces (sub-category A.2 Payments based on output). Table 7.4 llustrates the calculaton of consumer NPC for ndvdual commodtes. THE PSE MANUAL OECD

130 Chapter 7. Calculatng Indcators of Support to Consumers Table 7.3. Calculaton of %CSE and consumer NAC (example) Symbol Descrpton Unts Value Source / equaton VP C Total value of producton (at farm gate) LC mllon Table 6.2 VP AMC Value of producton of MPS commodtes LC mllon Table 6.2 VC C Total value of consumpton (at farm gate) LC mllon VC AMC / VP AMC * VP C VC AMC Value of consumpton of MPS commodtes LC mllon Table 7.4 (sum of VC of All MPS commodtes) CSE C Consumer Support Estmate LC mllon -313 Table 7.2 TCT C Transfers to consumers from taxpayers LC mllon 70 Table 7.2 %CSE Percentage Consumer Support Estmate % -12 CSE / (VC - TCT) * 100 Consumer NAC Consumer Nomnal Assstance Coeffcent Rato 1.14 VC / (VC + CSE) 1 - %CSE / (100 + %CSE) Table 7.4. Calculaton of consumer NPC for ndvdual commodtes (example) Symbol Descrpton Unts Wheat Barley Oats Mlk Beef Cotton Potatoes Source / equaton QC Level of consumpton 000 T Table 7.1 PP Producer prce (at farm gate) LC/T Table 6.3 RP Reference Prce (at farm gate) LC/T Table 6.3 TPC Transfers to producers from consumers LC mllon Table 7.1 OTC Other transfers from consumers LC mllon Table 7.1 VC Value of consumpton (at farm gate) LC mllon PP * QC Consumer NPC Consumer NPC Rato PP / RP or VC / (VC - TPC - OTC ) 128 THE PSE MANUAL OECD 2010

131 Chapter 7. Calculatng Indcators of Support to Consumers Consumer NPC for a country 333. As prces and quanttes cannot be aggregated over a varety of dfferent commodtes, the consumer NPC for a country s calculated based on the value of transfers: consumernpc where: VC C TPC C OTC C C [7.10] VC C VC TPC C OTC total value of producton for country C C total Transfers to Producers from Consumers for country C total Other Transfers from Consumers for country C 334. The consumer NPC for ndvdual commodtes can also be calculated based on the transfer values method, by smply substtutng n the approprate values for the ndvdual commodty nto the equaton Ths s also shown n Table Table 7.5 shows the calculaton of a natonal (aggregate) consumer NPC, whch at 1.18 s exactly the same as the aggregate consumer NPC for All MPS commodtes. Note that the natonal (aggregate) consumer NPC s lower than the producer NPC of 1.20 the dfference s due to the payments based on output receved by producers, whch represent transfers from taxpayers and not from consumers Consumer NPC for other commodtes 336. A consumer NPC for other commodtes,.e. non standard MPS commodtes, can also be calculated. Agan, ths s based on the value method rather than the prce method as an average prce for the set of other commodtes cannot be calculated. To obtan the necessary values for other commodtes, values for the standard MPS commodtes for whch MPS has been calculated are subtracted from the natonal (aggregate) values: ( VCC VP) SMC consumernp COC [7.14] ( VCC VC ) ( TPCC TPC ) ( OTPC OTP ) SMC SMC SMC 337. Table 7.6 llustrates how ths calculaton s performed. Note that n ths nstance the resultng consumer NPC for other commodtes (1.14) s lower than the natonal (aggregate) consumer NPC (1.18) because the consumer NPC derved for the standard commodtes (1.21) s hgher than that for natonal average. THE PSE MANUAL OECD

132 Chapter 7. Calculatng Indcators of Support to Consumers Table 7.5. Calculaton of a natonal (aggregate) consumer NPC (example) Symbol Descrpton Unts All MPS commodtes (AMC) Natonal (aggregate) (C) Source / equaton VC Value of consumpton (at farm gate) LC mllon Table 7.3 TPC Transfers to producers from consumers LC mllon Table 7.2 OTC Other transfers from consumers LC mllon Table 7.2 Consumer NPC Consumer NPC Rato VC / (VC - TPC - OTC ) Table 7.6. Calculaton of a natonal (aggregate) consumer NPC (example) Symbol Descrpton Unts Natonal (aggregate) (C) Standard MPS commodtes (SMC) Other commodtes (OC) Source / equaton VC Value of consumpton (at farm gate) LC mllon VC C - Table 7.5; VC SMC : Table 7.4 VC OC = VC C - VP SMC TPC Transfers to producers from consumers LC mllon TPC C : Table 7.5; TPC SMC : Table 7.4 TPC OC = TPC C - TPC SMC OPT Other transfers from consumers LC mllon OTP C : Table 7.5; OTP SMC : Table 7.4 OTP OC = OTP C - OTP SMC Consumer NPC Consumer NPC Rato VC / (VC - TPC - OTP ) 130 THE PSE MANUAL OECD 2010

133 Chapter 8. Calculatng Indcators of Support to General Servces and Total Support to Agrculture CHAPTER 8. CALCULATING INDICATORS OF SUPPORT TO GENERAL SERVICES AND TOTAL SUPPORT TO AGRICULTURE 338. Ths chapter explans the calculaton of ndcators that measure support provded to producers through general servces to agrculture, and that provded to the sector as a whole. The procedure for calculatng these ndcators s summarsed n Dagram 8.1. The process begns by calculatng the General Servce Support Estmate (GSSE) (secton 8.1). Ths s combned wth the value of transfers calculated n the PSE and CSE to calculate the Total Support Estmate (TSE), wth care taken to avod double-countng of transfers (secton 8.2). From these two absolute ndcators, the relatve ndcators of support, the %GSSE and the %TSE are derved (secton 8.3). As ndcated by Dagram 8.1, these ndcators are only calculated at the natonal (aggregate) level and not at the commodty or group of commodtes level. Dagram 8.1. The procedure for calculatng ndcators of consumer support Commodty or group of commodtes level Monetary ndcators Percentage ndcators Natonal (aggregate) level PSE GSSE %GSSE CSE TSE %TSE 8.1. General Servces Support Estmate (GSSE) General Servces Support Estmate (GSSE): the annual monetary value of gross transfers to general servces provded to agrcultural producers collectvely (such as research, development, tranng, nspecton, marketng and promoton), arsng from polcy measures that support agrculture regardless of ther nature, objectves and mpacts on farm producton, ncome, or consumpton. The GSSE does not nclude any payments to ndvdual producers. GSSE values are calculated by summng the values for polcy measures n categores H to N (Box 3.4) THE PSE MANUAL OECD

134 Chapter 8. Calculatng Indcators of Support to General Servces and Total Support to Agrculture 339. The GSSE measures the value of transfers provded through polces that support producers collectvely rather than as ndvdual producers. The GSSE can be estmated as: GSSE GSSECatego ry [8.1] where: GSSE GSSE for country C GSSECategory - total value of transfers to GSSE category (from H to N; see Table 8.1) 340. A numercal example s presented n Table 8.1. In order to ad transparency and to assst n analysng the composton of the GSSE, the name of each polcy and the resultng value of transfer are lsted under the GSSE categores (from H to N) to whch they have been classfed accordng to the process set out n secton 3.4. Table 8.1. Calculaton of GSSE (example) (example) Descrpton LC mllon Source / equaton General Servces Support Estmate (GSSE) 140 H + I + J + K + L + M + N H. Research and development 35 Sum of payments n H Natonal Agrcultural Research Insttute 25 Data Organc agrculture research - tender 10 Data I. Agrcultural schools 15 Sum of payments n I Unversty bursary for farmers 10 Data Professorshp 5 Data J. Inspecton servces 40 Sum of payments n J Natonal Food Safety Authorty 20 Data Natonal Gran Inspecton Servce 20 Data K. Infrastructure 20 Sum of payments n K Irrgaton and dranage development 10 Data Early Retrement Scheme 5 Data Purchase of mlk quotas 5 Data L. Marketng and promoton 25 Sum of payments n L Market campagn to promote country's products 15 Data Commodty Gradng Scheme 10 Data M. Publc stockholdng 5 Sum of payments n M Interventon storage of cotton 5 Data N. Mscellaneous 0 Sum of payments n N 132 THE PSE MANUAL OECD 2010

135 Chapter 8. Calculatng Indcators of Support to General Servces and Total Support to Agrculture 8.2. Total Support Estmate (TSE) Total Support Estmate (TSE): the annual monetary value of all gross transfers from taxpayers and consumers arsng from polces that support agrculture, net of the assocated budgetary recepts, regardless of ther objectves and mpacts on farm producton and ncome, or consumpton of farm products. TSE values may be calculated n two ways,.e. by summng over dfferent recpents, or over dfferent sources 341. Two methods exst to calculate the TSE for a country, and both are used to help to ensure that all ndcators of support are correctly calculated (Table 8.2). The frst method sums up the transfers dstngushed by recpent,.e. transfers to producers (PSE), transfers to general servces (GSSE) and transfers to consumers from taxpayers,.e. consumer subsdes (TCT): TSE PSE GSSE TCT [8.2] 342. The second method sums up the transfers dstngushed by source,.e. transfers from consumers (TPC + OTC) and transfers from taxpayers ((PSE TPC) + GSSE + TCT OTC), as shown n equtaton 8.3 (algebracally t can be reduced to equaton 8.2): TPC OTC ((( PSE TPC ) GSSE TCT ) OTC ) TSE [8.3] Table 8.2. Calculaton of TSE (example) Symbol Descrpton LC mllon Source / equaton PSE Producer Support Estmate 684 Table 6.7 GSSE General Servces Support Estmate 140 Table 8.1 TCT Transfers to consumers from taxpayers 70 Table 7.2 TSE Total Support Estmate (TSE) 894 PSE + GSSE + TCT TFC Transfers from consumers 405 TPC + OTC TPC Transfers to producers from consumers 310 Table 7.2 OTC Other transfers from consumers 95 Table 7.2 TFT Transfers from taxpayers 584 PSE - TPC + GSSE + TCT BR Budget revenues 95 = OTC TSE Total Support Estmate (TSE) TFC + TFT - BR or (TPC + OTC) + (PSE - TPC + GSSE + TCT) - OTC 343. It should be noted that both methods for calculatng the TSE nvolve the assumpton that the total value of transfers from consumers to others (OTC) s receved as budget revenue. THE PSE MANUAL OECD

136 Chapter 8. Calculatng Indcators of Support to General Servces and Total Support to Agrculture 8.3. Percentage GSSE (%GSSE) and Percentage TSE (%TSE) Percentage GSSE (%GSSE): transfers to general servces (GSSE) as a share of TSE. Percentage TSE (%TSE): TSE as a share of GDP Two relatve ndcators of support are derved from absolute values of GSSE and TSE. The %GSSE ndcates the mportance of support to general servces wthn total support. It s calculated as the percentage share of the TSE: GSSE % GSSE 100 [8.4] TSE 345. The %TSE ndcates the level of total support to agrculture relatve to a country s gross domestc product (GDP). The %TSE s found as a percent share of the value of GDP: TSE % TSE 100 [8.5] GDP 346. Table 8.3 presents the results of these calculatons. The %GSSE s estmated at 16% whle the %TSE s estmated at 1.48%. Table 8.3. Calculaton of %GSSE and %TSE (example) Symbol Descrpton Unts Value Source / equaton GSSE General Servces Support Estmate LC mllon 140 Table 8.1 TSE Total Support Estmate LC mllon 894 Table 8.2 %GSSE Percentage General Servces / Support Estmate % 16% GSSE / TSE * 100 GDP Gross Domestc Product LC mllon Data %TSE Percentage Total Support Estmate % 1.48% TSE / GDP * THE PSE MANUAL OECD 2010

137 Chapter 9. Calculatng Indcators of Support for the OECD as a Whole CHAPTER 9. CALCULATING INDICATORS OF SUPPORT FOR THE OECD AS A WHOLE 347. Ths chapter explans the procedure for calculatng ndcators of support for the OECD as a whole through the aggregaton of support ndcators for ndvdual OECD countres. Two steps must be followed. Frst, monetary transfers and values of producton are converted from natonal currences nto a common currency. Once ths s done, two methods are used to aggregate the country values together, n order to valdate the results. Once absolute ndcators have been estmated at the OECD level, the relatve ndcators can be derved Converson nto a common currency 348. To obtan OECD total support ndcators, the value of transfers and producton n natonal currences must be converted nto a common currency. The choce of the common currency has an mportant mpact on the results n terms of how the absolute ndcators: (a) compare between countres, and (b) change from year to year. For ths reason, OECD total support ndcators are calculated n both US dollars and n Euros. However, the relatve ndcators are the same whatever common currency s chosen The converson of local currency values nto US dollar values s done as follows: MV [9.1] XR LC USD C MV C LC / USD where: MV C Monetary value, whether transfers or value of producton, for country C USD US dollars LC Local currency LC USD XR / exchange rate between local currency and USD 350. In the case of the PSE, for example, t becomes: PSE [9.1a] XR LC USD C PSE C LC / USD 351. The Euro values are derved as: MV EUR C USD EUR / USD MVC XR [9.2] where: EUR/ USD XR exchange rate between Euro and USD 352. Agan, n the case of the PSE, t becomes: PSE EUR USD EUR/ USD C PSEC XR [9.2a] THE PSE MANUAL OECD

138 Chapter 9. Calculatng Indcators of Support for the OECD as a Whole 9.2. Aggregaton to OECD totals 353. Once the values of transfers and producton have been converted nto US dollars and Euros, aggregaton nto OECD totals s carred out. There are two complementary methods of performng the aggregaton for the PSE (Dagram 9.1) The frst ( left-hand sde ) aggregaton uses the PSE categores; the second ( rght-hand sde ) uses the four ndcators of commodty specfcty that are derved from the PSE,.e. summng together the producer sngle commodty transfers (SCT), groups of commodtes transfers (GCT), all commodtes transfers (ACT) and other transfers to producers (OTP). The two methods act as a crosscheck valdatng the result of the aggregaton,.e. the OECD total PSE Each of these two methods can be appled n two ways: (a) aggregatng monetary transfers nto the OECD total at the (sub) category level and then dervng the ndcators (labelled for database n Dagram 9.1); and (b) re-calculatng the absolute ndcators at the natonal level, ths tme n a common currency, and aggregatng them nto an OECD total (labelled for cross-checkng n Dagram 9.1). The former provdes all the necessary detals to break down the OECD total absolute ndcators nto ther components, such as PSE categores or ndcators of commodty specfcty. For ths reason, t s used to derve the OECD total PSE, and s explaned n detal below for each of the two methods. In practce, the second possblty s also used to cross-check the results of both methods Aggregaton based on PSE categores 356. In ths method, the PSE sub-categores and categores are summed up for all countres. Usng values expressed n US dollars as the example, ths can be expressed as: USD USD PSE ( sub) Category OECD PSE( sub) Category C [9.3] 357. For example, n the case of PSE category A, payments based on commodty outputs (CO) are: USD USD USD USD CO MPS PO PO [9.4] OECD OECD OECD USD MPSC 358. Once all country sub-categores and categores have been aggregated together, the OECD total PSE s calculated usng the same formula as for ndvdual countres: USD USD PSE OECD PSECategor yoecd [9.5] 359. A smlar procedure s followed for dervng the OECD total GSSE and CSE ndcators,.e. OECD values are frst calculated for each of the varous GSSE categores and for the varous categores of transfers n the CSE, before beng added together to derve the OECD total GSSE and CSE ndcators. C 136 THE PSE MANUAL OECD 2010

139 Chapter 9. Calculatng Indcators of Support for the OECD as a Whole Dagram 9.1. The procedure for calculatng the OECD total PSE Aggregaton over PSE categores Commodty-specfc aggregaton aggregaton aggregaton PSE CATEGORIES OECD PSE CATEGORIES by country COMMODITY-SPECIFIC INDICATORS by country COMMODITY- SPECIFIC INDICATORS OECD A + B + C + D + E + F + G OECD A + B + C + D + E + F + G by country PSCT + GCT + ACT + OTPT by country PSCT + GCT + ACT + OTPT OECD PSE by country PSE by country aggregaton aggregaton OECD TOTAL PSE For database For cross-checkng For cross-checkng For database THE PSE MANUAL OECD

140 Chapter 9. Calculatng Indcators of Support for the OECD as a Whole Aggregaton based on degree of commodty specfcty 360. In ths method, the four ndcators of commodty specfcty are aggregated over countres. Ths method does not apply to GSSE and CSE. The procedure begns by calculatng an OECD total producer SCT value for each of the standard MPS commodtes as follows: USD USD producersc TSMC, OECD producersc TSMC, C [9.6] where: SMC standard MPS commodty 361. An OECD total producer SCT for Other Commodtes (producer SCT OC ) s also calculated by a smlar process: USD USD producersc TOC, OECD producersc TOC, C [9.7] 362. From equatons 9.6 and 9.7, the OECD total producer SCT s: USD USD USD producersc TOECD producersctsmc, OECD producersct OC, OECD sc [9.8] 363. The OECD total GCT, ACT and OTP ndcators are smlarly calculated: USD USD GCT OECD GCT C [9.9] USD USD ACT OECD ACTC [9.10] USD USD OTP OECD OTPC [9.11] 364. Once all four ndcators of commodty specfcty are calculated, they can be summed to an OECD total PSE as follows: PSE USD OECD producersct GCT ACT OTP [9.12] USD OECD USD OECD USD OECD USD OECD 365. The fnal step s to compare and valdate the results. If both methods result n the same OECD total PSE, the TSE for the OECD as a whole s calculated. Once the absolute ndcators have been computed at the OECD level, the relatve ndcators are calculated, usng the varous formulas contaned n Chapters 6, 7 and THE PSE MANUAL OECD 2010

141 Chapter 10. Data and Informaton Requrements for Calculatng the Indcators CHAPTER 10. DATA AND INFORMATION REQUIREMENTS FOR CALCULATING THE INDICATORS 366. Ths chapter lsts the data and nformaton requrements for calculatng the ndcators of support, drawng on the methodology detaled n the prevous chapters of Part II. Its purpose s to assst those nvolved n calculatng ndcators, whether Secretarat staff, Member country governments, ndependent researchers, etc., n gatherng the necessary nformaton whch may be needed from a wde range of sources The ndcators are calculated on an annual bass. The tme scale (.e. the number of years) over whch the ndcators are calculated wll, accordngly, ncrease the quantty of nformaton requred Requrements for calculatng prce transfers 368. Informaton requred on the domestc market: Value and volume of producton nformaton for ndvdual commodtes and total agrculture at the farm gate level. Producer (farm gate) prces, clearly ndcatng the unt that t s based on. For consstency wthn the transfer calculaton, ether the value of producton s found by multplyng quantty by prce, or alternatvely the value s dvded by quantty to derve a producer prce. In the case of cereals that are used for feed, separate producton and prces are requred for product used as feed and that used for food, e.g. the PP for wheat s often the weghted average prce of wheat used for feed and wheat used for food. Consumpton data s also requred. Ths can be obtaned drectly, or as a result of addng the volume of producton and mports and subtractng mports, ensurng that the same product weght bass s used. Quanttes of product used for feed use n the lvestock sector dvded nto type of feed and the lvestock commodtes whch nvolve use of the feed Sources that can be used to obtan nformaton related to marketng margns nclude: Estmatons publshed by natonal authortes. However, such data are relatvely rare, snce the nformaton s often commercally senstve. Estmatons obtaned on a regular but often ad hoc bass from natonal authortes, commodty boards, major cooperatves, ndustry organsatons or major prvate processng companes. For example, OFIVAL n France has estmated the processng costs of abattors based on survey data. Estmatng the marketng margn as the dfference between the producer prce and an average wholesale prce n the country consdered. However, ths type of estmaton leads to very varable margns, and t may be approprate to use a movng average margn for several years. Ths opton s less preferable than the prevous two. THE PSE MANUAL OECD

142 Chapter 10. Data and Informaton Requrements for Calculatng the Indcators Usng marketng margns avalable n other countres f no domestc nformaton s avalable. Ths s the case when the mlk reference prce s estmated n mportng countres, whch s adjusted by subtractng the average margn n four man exportng countres (Annex 4.1). EU marketng margns for certan products are used for several non-eu European countres Trade data ncludes: Values and volumes for both exports (FOB) and mports (CIF) of agrcultural commodtes and products. Tarff schedule for the country to understand the profle of tarffs mposed on mports. Export subsdy budgetary nformaton. Exchange rates nformaton on offcal exchange rates, on an annual bass, and, f relevant, on a monthly bass so that any seasonal calculatons can be made Requrements for calculatng budgetary and other transfers 371. Data on budgetary transfers related to the mplementaton of agrcultural polces s based on offcal budgetary nformaton on the executon of natonal budgets and reports by relevant agences. The majorty of ths nformaton s publcly avalable on the nternet stes of the mnstres of fnance, agrculture and central banks of the countres concerned. Admnstratve databases whch provde detaled nformaton on current expendtures by programmes also exst wthn the mnstres, often on a monthly bass. These help to adequate allocaton of payments to calendar years. However, ths nformaton s not publcly avalable Care should be exercsed when budgetary nformaton s compled from several sources. Some sub-natonal expendtures may be reported both ndependently and as part of the expendtures made at hgher admnstratve levels. Another case warrantng cauton n order to avod doublecountng s where data on the budgetary outlays s compled through combnaton of sources reportng the publc spendng by agences and by specfc programmes/actvtes. It s generally preferable to use a sngle source of budgetary nformaton; however, ths does not often provde suffcent detal on the budgetary spendng, thus makng t necessary to use several sources. It s therefore mportant to understand the composton of the budgetary data reported n varous sources used. Sources on agrcultural budgetary spendng may be found n the country-specfc documentaton (Defntons and Sources) avalable on OECD publc webste Estmaton of support based on revenue foregone demands recourse to offcal documents descrbng the relevant mechansms. For example, to estmate transfers related to preferental lendng, offcal documents (regulatons) are requred descrbng the condtons of lendng, ncludng tme terms of loans, repayment schedules and nterest rates appled. In the case of debt reschedulng, all relevant government decsons outlnng the condtons and schedules for repayments should be used. Informaton on preferental nterest rates s usually avalable from the Mnstry of Agrculture and banks nvolved n preferental lendng. Informaton on market (reference) nterest rates s usually publshed by the central banks. Mnstres and agences dealng wth macro-economc ssues typcally provde varous prce and fnancal data Support based on revenue foregone presents a partcular dffculty n terms of achevng consstency across countres (e.g. as s the case of tax concessons) because these transfers are not always measured or reported. 140 THE PSE MANUAL OECD 2010

143 Chapter 11. Interpretng the Indcators CHAPTER 11. INTERPRETING THE INDICATORS 375. The OECD ndcators of agrcultural support can be used to assess both the level and the composton of support that arse from polces supportng agrculture. 16 The level of producer support and ts composton s the nformaton most commonly utlsed. Ths chapter shows how the ndcators can be used to nterpret developments n the level of producer support, and how the composton of producer support can be shown n terms of the categores (and sub-categores) nto whch polces are classfed and the labels attached to these polces, ncludng the degree of commodty specfcty. The level and composton of support to the agrcultural sector as a whole can be evaluated through the TSE Interpretng the level of support The three man ndcators of support to ndvdual agrcultural producers are %PSE, producer NAC and producer NPC (Box 2.1). In order to nterpret the level of support, these relatve ndcators are preferred to monetary ndcators, partcularly when comparng changes over tme and between countres. The %PSE ndcates the extent to whch transfers ncrease gross farm recepts. The contrbuton analyss helps explan the annual changes n producer support by dentfyng the source of changes n the varous components Level of producer support natonal (aggregate) level 376. Three man ndcators are used to show the level of support provded to ndvdual agrcultural producers at the natonal (aggregate) level: %PSE, producer NAC, and producer NPC. These percentage and rato ndcators show, n aggregate, the mportance of agrcultural support relatve to producer recepts or border prces. Such relatve ndcators are generally used n preference to the monetary ndcators, snce they are not affected by the sze and the structure of the agrcultural sector as a whole, by the relatve mportance of commodtes wthn the sector, or by the rate of nflaton. They thus allow greater comparablty over tme, across countres and between commodtes wthn a country (Box 11.1) A %PSE of 20% means that the estmated total value of polcy transfers to ndvdual producers from consumers and taxpayers represents 20% of total gross farm recepts 17, or, alternatvely, that 20% of gross farm recepts come from transfers due to polcy measures supportng 16. The most recent set of ndcators found n the ndcator database should be used to buld a database seres ( The current set of ndcators s sgnfcantly dfferent from those publshed n the late 1980s and early 1990s. To mantan consstency, the ndcators have been recalculated back to 1986 whenever a sgnfcant change n methodology has occurred 17. Recall that gross farm recepts s the value of producton, plus Budgetary and Other Transfers provded to producers (.e. VP + BOT). THE PSE MANUAL OECD

144 Chapter 11. Interpretng the Indcators producers. A %PSE of 0% ndcates that the estmated aggregate value of transfers to ndvdual producers from consumers and taxpayers s zero. 18 A %PSE cannot be hgher than 100%, at whch level all farm recepts come from polcy measures, wth no returns from the market. Box Use of %PSE n evaluatng annual changes n agrcultural support for the OECD area as a whole The PSE, the total monetary value for the estmated polcy transfers to producers, s expressed n the local currency of each country. It must be converted nto a common currency to allow aggregaton nto total PSE for the OECD area as a whole. Consequently, the year-on-year varaton n the total level of transfers denomnated n a sngle currency wll result from both changes n the level of transfers measured n each natonal currency and exchange rate movements. The OECD total value of agrcultural polcy transfers to producers, as measured by the PSE, ncreased slghtly n USD from USD 257 bllon n 2006 to USD 258 bllon n 2007 (OECD, 2008b). In contrast, when expressed n Euros, the OECD total PSE declned markedly from EUR 205 bllon n 2006 to EUR 189 bllon n What can one conclude about the change n the level of support between 2006 and 2007 based on these dfferng results? The most approprate measure to compare changes n the level of support n the OECD as whole s the %PSE, whch expresses the value of polcy transfers as a share of gross producer recepts. The latter represent the market value of agrcultural output to whch are added transfers to producers from taxpayers. The %PSE solves the problem of exchange rate choce because the same exchange rates are used to convert both the denomnator and the numerator nto a sngle currency. Consequently, the %PSE s the same regardless of the currency. As a relatve measure, the %PSE also provdes a sense of the mportance of polcy-nduced transfers n the sector and s also approprate for comparsons among OECD countres. The %PSE s a relatve ndcator and ts value also depends on changes n the value of agrcultural output. In ths respect, a reducton n support may not always lead to a smaller %PSE f the fall n the value of output s greater than the reducton n support. A fall n output value (and volume) may have varous causes, for example, natural factors, such as a clmate-related dsaster, or an outbreak of anmal dsease. A reducton n the output value may also theoretcally reflect polcy developments. Ths fall may, for example be assocated wth the reducton n the level of support as a result of polcy reform, and/or a change n composton of support, such as a shft away from payments drectly coupled to output. The changes n the %PSE tend to be senstve to the ntal level of the ndcator,.e. at hgh levels of %PSE a gven reducton n the absolute PSE wll lead to a smaller change n the %PSE, compared to when the ntal level of the %PSE s low A producer NAC of 1.2 ndcates that the estmated aggregate value of transfers to ndvdual producers from consumers and taxpayers n the country ncreases gross farm recepts by 20% above what they would be f producton s valued at border prces and wth no other support. A producer NAC of 1 ndcates that the estmated aggregate value of transfers to ndvdual producers from consumers and taxpayers s zero. A producer NAC of 4 ndcates that gross farm recepts are four tmes, or 300%, hgher than f producton s valued at border prces (Box 11.2) Producer NPC measures the level of domestc market protecton; t compares domestc market and border prce and adds n the value of support provded through payments based on output. 18. Ths does not necessarly mean that there are no transfers to ndvdual producers from consumers and taxpayers wthn the country; t could be that transfers to producers through support polces n one sector are offset by transfers from producers that result from polces whch mplctly tax producers n another sector. Ths may occur, for example, when the olseed sector s supported through mport tarffs and drect defcency payments, whle the gran sector s taxed through export dutes (resultng n negatve polcy transfers). 142 THE PSE MANUAL OECD 2010

145 Chapter 11. Interpretng the Indcators A producer NPC of 1.2 for a country ndcates that domestc producer prces are on average 20% above border prces for the same commodtes. A producer NPC of 1 ndcates that prces receved by producers are on average the same as border prces. 19 A producer NPC of 4 ndcates that farm-gate prces are on average four tmes, or 300%, hgher than border prces. Box Comparng changes n the %PSE and producer NAC Whle the %PSE and producer NAC are complementary measures that always move n the same drecton, the %PSE s more senstve to changes n support levels when support s low relatve to recepts, whereas the NAC s more senstve to changes n market recepts when support s hgh. In order to understand changes n polcy support over a broad range of support levels, both measures should be consdered. The %PSE s the share of the PSE n total recepts, and so measures the rato of the PSE to total recepts, ncludng both market recepts and support transfers: PSE % PSE Y PSE where Y equals market recepts at border prces,.e. excludng market prce support (.e. VP MPS). The PSE ncludes MPS, so Y excludes t to avod double-countng. The %PSE approaches the value of 100 as the PSE gets large relatve to Y. When the PSE s large relatve to market recepts, changes n the PSE wll move the %PSE by a relatvely small amount, snce the change n PSE mpacts both the numerator and denomnator of the rato that defnes the %PSE. As a result, the %PSE s relatvely nsenstve to PSE changes when the PSE s sgnfcantly larger than Y. For example, a %PSE value of 75 ndcates a stuaton where the PSE s three tmes the level of market recepts. To reduce the %PSE from 75 to 66,.e. by nne percentage ponts, ether the PSE has to reduce by half, or market recepts must ncrease by 50% The producer NAC s the extent to whch recepts come from the market place, and so measures the rato of total recepts to market recepts: Y PSE producernac Y The NAC approaches a value of 1 as the PSE becomes small relatve to market recepts. When the PSE s large relatve to Y, changes n the PSE wll change the NAC by the same magntude, but changes n market recepts can brng about large changes n the NAC (consder the denomnator of the equaton to see why ths s so). For example, for the same stuaton descrbed above where the PSE s three tmes the level of market recepts (a %PSE of 75%), the NAC has a value of 4, reflectng a stuaton where total recepts are 400% of the market recepts. Increasng market recepts by 50% would reduce the NAC to 3, a reducton of 100 percentage ponts and 25% of the value of the ndcator Table 11.1 and Fgure 11.1 llustrate how the changes n the level of support to producers over tme can be shown for a country through the PSE expressed n monetary terms (n local and common currences), n percentage terms and through related producer support ndcators, NAC and NPC (Box 11.3). 19. As for the %PSE and producer NAC, a producer NPC of 1 for a country does not necessarly mean that all producers are recevng prces equvalent to border prces; t could be that producer prces for some commodtes are hgher than border prces, whle they are lower for others. THE PSE MANUAL OECD

146 Chapter 11. Interpretng the Indcators 381. The ndcators show that, whle the aggregate value of transfers to producers (PSE) n natonal currency has ncreased, the level of producer support, as a share of gross farm recepts (%PSE), has fallen from 40% n to 20% n a declne of one-half. In , transfers arsng from support polces ncreased farm recepts by 67% above what they would have been f producton s valued at border prces. By , farm recepts were only 25% hgher due to support polces. The producer NPC ndcates that prces receved by producers were on average 40% hgher than border prces n By , the gap had fallen by 75%, so that prces receved by producers are now on average only 10% hgher than border prces. Table Indcators of producer support (example) Indcators Average Average PSE (Local Currency mllon) PSE (USD mllon) PSE (EUR mllon) %PSE Producer NAC Producer NPC Fgure Evoluton of %PSE, producer NAC and producer NPC (example) %PSE 50 NAC/NPC %PSE producer NAC producer NPC Box Showng changes n support over tme 144 THE PSE MANUAL OECD 2010

147 Chapter 11. Interpretng the Indcators Two methods are used to show changes n both the level and composton of support over tme. These are done n ether tabular or graphcal form. The frst method s to smply show an annual seres of ndcators over an extended tme perod. Vewng developments over the long term allows both general trends and year-to-year fluctuatons to be observed. The second method nvolves comparng three-year averages and the selecton of an approprate base perod from whch to reference changes. A three-year average reduces some of the year-to-year varablty n support levels that arse due to fluctuatons n world prces, exchange rates, etc. For OECD countres generally, the reference perod s ; a perod of relatvely hgh support, and the WTO Uruguay Round base perod for domestc support reducton commtments for developed countres; ths predates most of the substantal agrcultural reforms that have taken place. Consequently, n presentng the results n the annual Agrcultural Polces n OECD Countres n tabular form, a column wth the ndcator values for the perod s ncluded alongsde the most recent three-year perod. In graphcal form t shows two columns or bars, one representng and the other the most recent perod. For other countres, dfferent base perods may be more approprate. For example, for montored non- OECD countres such as Brazl, Chna, Russa, South Afrca and Ukrane, the perod s consdered to be a more approprate benchmark gven the radcal poltcal and economc changes that took place n these countres n the late 1980s and early 1990s. For Mexco, t s also sometmes more approprate to compare wth the perod, gven the negatve support levels that exsted n the md-1980s when farmers were effectvely taxed by government polces Level of producer support commodty level 382. The prevous sub-secton examned ndcators of producer support at the country or natonal (aggregate) level. Two ndcators of the level of support are calculated at the ndvdual commodty level: %SCT and producer NPC. The %SCT measures the extent to whch producton of an ndvdual commodty s requred to receve support. Comparng %SCT values across a range of commodtes provdes an ndcaton of the degree to whch support s drectly lnked to producton of these specfc commodtes. Fgure 11.2 shows how the results can be presented for a country, showng changes n the %SCT from a base perod. It can be qute clearly seen that n the long term the reducton n transfers to a sngle commodty has not been unform across commodtes. Fgure Producer %SCTs by commodty (example) Rce Sugar Mlk Sheepmeat Other commodtes Beef and Veal Pgmeat Maze Wheat Other grans Sunflower Poultry Eggs Soyabean Wool Rapeseed 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% THE PSE MANUAL OECD

148 Chapter 11. Interpretng the Indcators 383. A producer NPC can also be calculated at the ndvdual commodty level. As dscussed above, the producer NPC shows the level of domestc market protecton by comparng domestc prces (ncludng drect per tonne payments) to border prces. The reducton n the level of prce support s shown by the producer NPC for each commodty. A producer NPC of 20% ndcates that domestc prces for a gven commodty are on average 20% above border prces. Agan, these can be graphed for each commodty, and between tme perods (Fgure 11.3). Fgure Producer NPCs by commodty (example) Rce Sugar Mlk Sheepmeat Other commodtes Beef and veal All commodtes Pgmeat Maze Wheat Other grans Sunflower Poultry Eggs Soyabean Wool Rapeseed Commodtes are ranked accordng to NPC values Level of producer support contrbuton analyss 384. Whle percentage and rato ndcators can provde a good pcture of the level of support to producers and how ths level has changed over tme, they do not explan why the changes have occurred. In-depth polcy analyss requres some examnaton as to what has caused the change n support levels Changes n support levels may be due to several factors, the most obvous beng varatons n agrcultural polcy settngs. However, changes n nternatonal condtons can also make an mportant contrbuton to measured fluctuatons n the PSE, even n the absence of changes n domestc agrcultural polcy settngs. The varablty of border prces for agrcultural commodtes and changes n exchange rates are often the most mportant contrbutors to fluctuatons n the Market Prce Support component of the PSE (Box 11.4). 146 THE PSE MANUAL OECD 2010

149 Chapter 11. Interpretng the Indcators Box Why does the PSE change when world prces change? 1 Support levels as measured n the PSE framework tend to fluctuate over tme, a large part of whch can be attrbuted to fluctuatons n the MPS component of the PSE. The calculaton of the MPS for a gven commodty s based on the gap between the producer prce (at the farm gate) and the border prce equvalent (adjusted for marketng margns) n the country concerned. The major source of fluctuatons n the MPS s the varablty of world market prces for agrcultural commodtes. Another source s varablty of exchange rates, as world market prces (at the border) and domestc prces have to be expressed n the same currency. The PSE ndcator reflects the nature of polcy and the changes n support due to polcy. It s temptng to thnk that the ndcators should reman constant f polcy settngs have not changed. However, by pckng up the varablty of world market prces and exchange rates, the PSE rghtly reflects the polcy desgn characterstcs that lead to a dependence of support levels on market developments. Fluctuatons n polcy transfers arse from fxed domestc support prces that are sustaned through border nstruments and that mpede the full transmsson of changes n world market prces to the domestc market. In the absence of prce support polces, the producer prce would be algned wth the border prce (adjusted for marketng margns), and would therefore move up and down wth changes n world market prces and exchange rates. 2 There are dfferent polces regardng the transmsson of world market changes to the domestc market, and the MPS properly reflects such dfferences. For example, f an mportng country has only an ad valorem tarff, then ts domestc market prce moves up and down wth the world market prce (although domestc prces reman hgher than those on the world market) and hence the PSE would show no fluctuaton (as long as no other polcy nstruments had changed), snce the gap between border and domestc prces remans constant. The fact that over tme the MPS n the above case behaves dfferently than that of a country mantanng a constant domestc support prce wth some border mechansm to sustan t, s an approprate reflecton of dfferences n polcy mplementaton. Smlarly, a country provdng a defcency payment (a payment based on output) to mantan a constant domestc target prce makes smaller budget expendtures when the border prce s hgh (ncludng due to exchange rate varatons), and vce versa. In ths case, the PSE calculatons wll show a varable level of domestc output payments, rather than of MPS. In bref, the PSE s an ndcator of the transfers assocated wth agrcultural polces, ncludng those resultng from keepng producer prces n the domestc market stable whle world market prces and exchange rates fluctuate. The ndcator provdes an equvalent measurement of all types of polces that nsulate producer prces from market fluctuatons. In partcular, the method treats market prce support and defcency payments n the same way. 1. For a more elaborate dscusson on ths topc see Tangermann, In the realty of complex market stuatons, pass-through of a gven change n the border prce to the domestc market may take some tme. However, ths does not change the fundamental pont that n the absence of prce support polces or other barrers, domestc market prces would fluctuate along wth nternatonal prces and exchange rates The contrbuton analyss carred out by the OECD helps to nterpret changes n the level of producer support from one year to another by mathematcally solatng the mpact of both the explct and mplct components of agrcultural support. It answers the queston what would be the mpact of a polcy component f all other polces were held fxed, ceters parbus? For example, what s the contrbuton of exchange rate to the observed change n the reference prce? The analyss can be conducted for a gven country or for the OECD as a whole, and can nclude one, several or all commodtes. Ths dscusson focuses on contrbuton analyss for ndvdual countres and the OECD as a whole For ndvdual countres, the contrbuton analyss s based on data expressed n natonal currency. To aggregate the PSE to an OECD level, a common currency must be chosen (secton 9.1), leadng to a systematc dependence on the currency chosen To mtgate ths dependence, the contrbuton analyss calculates the annual percentage change n the OECD total PSE as an ndex of ndvdual country PSE changes (n natonal currences) THE PSE MANUAL OECD

150 Chapter 11. Interpretng the Indcators weghted by the shares of the country PSEs n the OECD total PSE n the prevous year. Smlarly, the annual percentage change n the OECD total MPS s a weghted average of country MPS changes, wth the weghts beng the shares of country MPS n the OECD total MPS n the prevous year. An mportant feature of ths weghtng scheme s that countres (and commodtes) are weghted accordng to ther contrbutons to the total PSE (and MPS), rather than by ther contrbuton to the value of producton The elements of the PSE contrbuton analyss follow from the defnton: PSE MPS C BOT C [11.1] where: PSE MPS C Producer Support Estmate for country C Market Prce Support for country C BOT C Budgetary and Other Transfers to producers for country C 390. The %change n the PSE can be decomposed nto contrbutons from MPS, and budgetary and other transfers to producers respectvely: where: PSE PSE t t % PSE t1 PSE t t MPSC MPSC t1 PSE 1 t1 t current perod (year) 100 t 1 prevous perod (year) t BOTC BOT 100 t1 PSE t1 C 100 [11.2] 391. The frst half of the equaton s the contrbuton from MPS, whle the second half s the contrbuton from Budgetary and Other Transfers to producers. The calculatons can be done at the natonal (aggregate) level because all varables are expressed as monetary transfers The contrbuton from budgetary and other transfers can be further decomposed nto the dfferent categores of the PSE classfcaton (based on output, nput use, etc.) as follows: BOT BOT PSE t t C % BOT C t1 t1 C 100 t t POC POC t1 PSE 1 t PMC PM t1 PSE t1 C 100 [11.3] where: PO C Payments based on output for country C PM C Mscellaneous payments for country C 148 THE PSE MANUAL OECD 2010

151 Chapter 11. Interpretng the Indcators 393. The contrbuton analyss for MPS s based on the sub-total MPS value for the set of MPS commodtes only,.e. t excludes the aggregate non MPS commodty (MPS XE ) as no representatve prces are avalable for ths category (secton 6.1.3). The methodology, smlar to that descrbed for the PSE above, utlses country-level data expressed n natonal currences. As certan varables such as prce and quantty produced cannot be added up, an ndex s created, usng as weghts the shares of MPS values for ndvdual commodtes (MPS ) n the aggregate value of MPS commodtes (MPS AMC ) n the prevous perod The elements of the MPS contrbuton analyss derve from the calculaton of MPS as the level of producton multpled by a per unt MPS, measured as the dfference between producer and border prce of an agrcultural commodty measured at the farm gate and adjusted for excess feed costs: MPS MPSu where: QP MPSu [11.4] EFC PP RP [11.5] QP MPSu per unt MPS 395. The calculatons are done at the ndvdual commodty level because quanttes cannot be meanngfully aggregated, e.g. tonnes of wheat and tonnes of beef. At the ndvdual commodty level, the formula s: MPS MPS t t % MPS t1 MPS t1 100 t QP QP t abs( MPS where: t MPSu ) t MPSu t t MPSu MPSu 100 t1 abs( MPS ) QP QP t1 1 1 t t1 1 2 ndvdual commodty abs (MPS) absolute value of MPS [11.6] 396. The frst half of equaton 11.6 calculates the contrbuton to the change n MPS arsng from the change n quantty produced; the second half calculates the contrbuton arsng from the change n MPSu. To ensure mathematcal consstency n the rare nstances where MPS s negatve n the reference perod, the absolute value of MPS t-1 s appled n the denomnator of the decomposton The resultng percentage changes are then aggregated to a weghted average for all MPS commodtes usng as weghts the prevous-year shares of ndvdual commodty MPS n the sub-total MPS for MPS commodtes. Usng commodty MPS shares as weghts gves more mportance to commodtes wth hgher MPS. An alternatve weghtng could be based on value of producton, but ths would not reflect the pattern of support whch s the focus of ths exercse. Expressed algebracally: THE PSE MANUAL OECD

152 Chapter 11. Interpretng the Indcators t1 t MPS MPS C % MPS t MPS AMC % 1 [11.7] 398. The calculaton may result n a very hgh percentage change n MPS for some countres, due to ether: (a) a sgnfcant change n MPS, or (b) a modest change n MPS, but a very small MPS n the base year. In the latter case, the result needs to be nterpreted wth care. Ths potental shortcomng s also present n the calculatons for PSE, but s more lkely to occur here because the MPS for some countres s very small or close to zero The % change n the reference prce can be decomposed nto the contrbuton of exchangerate changes and the reference prce defned n US dollars: RP LC where: XR RP [11.8] USD LC RP reference prce n local currency USD RP reference prce n US dollars XR exchange rate between local currency and US dollars 400. Ths assumpton s reasonable for countres where US dollars represent a hgh share of nternatonal transactons. For other countres, another currency such as the Euro would be more representatve. Nevertheless, arbtrarly choosng the US dollar facltates cross-country comparsons. At the commodty level, the formula s: RP RP t t1 t % RP t1 RP 100 t t XR XR t1 RP RP RP 2 RP 100, RP t1 RP t XR XR 2 1 USD, t1 USD, t USD t USD, t1 t1 where: RP reference prce USD RP reference prce converted to US dollars 100 [11.9] 401. As n the decomposton for MPS n equaton 11.8, the results can be aggregated to a weghted average for all MPS commodtes, usng as weghts the MPS of each commodty n the prevous year. Expressed algebracally: t1 t MPS % RP C % RP t [11.10] 1 MPS AMC 402. The results of ths contrbuton analyss are presented each year n the Agrcultural Polces n OECD Countres reports (see, for example OECD, 2007; OECD, 2008b). 150 THE PSE MANUAL OECD 2010

153 Chapter 11. Interpretng the Indcators Expressng the level of support n real terms 403. The PSE and TSE values, expressed n natonal currences n nomnal terms reflect, over tme, also general nflaton. Further, converson of these ndcators nto the US dollars or Euros and ther aggregaton va these rates may lead to very dfferent fndngs regardng support trends, dependng on whether the value of the US dollar (or the Euro) apprecates or deprecates relatve to the local currency (as llustrated n Box 11.1). In years when the value of the dollar declnes, aggregate PSEs expressed n dollars tend to rse, and fall f expressed n Euros Insofar as TSEs and PSEs for dfferent years consttute transfers between farmers, taxpayers and consumers over tme, t s approprate to express these ndcators n real terms. Ths s accomplshed by deflatng them by an ndex that accounts for nflaton, such as the GDP prce ndex, and aggregatng them across the OECD area usng purchasng power partes (PPPs) calculated accordng to the gross domestc product (GDP) of the varous countres. Usng ths procedure, t s estmated that the PSE for the OECD area as a whole dropped n real terms by 27% between and (OECD, 2003). The OECD does not undertake these calculatons on an annual bass, but perodcally calculates and publshes the results Interpretng the composton of support Polcy support to agrculture n OECD countres has altered sgnfcantly n composton snce the md-1980s. The composton of producer support can be shown n terms of PSE categores and subcategores and labels, whch focus on the mplementaton crtera of the polces. The composton of support to general servces (GSSE) can be shown n terms of broad polcy areas. The composton of total support to agrculture (TSE) can be shown n terms of who pays and who receves the transfers arsng from polces Why analyse the composton of support? 405. When the ndcators were frst developed by the OECD n the md-1980s, the vast majorty of support was provded through polces that created transfers to producers through hgher market prces or payments based on output. Ths allowed the focus of attenton to be on the total level of support provded. Modern agrcultural polcy has ncreased n complexty, wth the ntroducton of new polcy objectves and new approaches to polcy support undertaken to meet requrements mposed by multlateral commtments such as the WTO Uruguay Round commtments and Panel Decsons. Thus, as polces n OECD countres have been reformed over tme, the ssue of the composton of support has become more mportant Polces ntended to have a reduced mpact on producton decsons, whle stll supportng farm ncome or the farm sector as a whole, have become more mportant. Polces ncreasngly delver transfers not on the bass of commodty producton (whether past or present) or nput use, but on other bases such as farmed area, or overall farm ncome or non-commodty crtera. Many polces now provde transfers on the bass of a mxture of current and past prces and producton, often wth constrants mposed on the condtons under whch farmers are elgble for payments. Ths requres makng a better dstncton between support to commodty producton as such, or to nputs used to produce them, and support to the farm as an entty or the agrcultural sector as a whole. These changes n polcy mplementaton have led to the development of new PSE categores (Table A2.1), a new THE PSE MANUAL OECD

154 Chapter 11. Interpretng the Indcators focus on the composton of the PSE as a means of understandng the effects, and the development of new tools and methods to analyse them (Chapter 12) Polcy developments n Swtzerland llustrate ths concern. The level of producer support n Swtzerland, as measured by the %PSE, has fallen from 77% to 60% between and seemng to ndcate relatvely modest progress towards polcy reform. However, over ths perod, Swtzerland has made sgnfcant changes to ts agrcultural support polces. Whle relatvely hgh tarffs and tarff rate quotas reman n place, Swtzerland has abolshed all state guarantees for prces and sales. It has also reformed the way n whch drect payments are provded to farmers, replacng most of the prevous programmes wth two man types of payments: General Drect Payments, manly granted n the form of area and headage payments on condton that farmers comply wth a set of envronmental farm management practces; and Ecologcal Drect Payments, manly granted to compensate farmers for undertakng addtonal envronmental or anmal welfare practces Composton of producer support PSE categores 408. The composton of support s reflected n the PSE by the share of support that falls nto each of the PSE categores or sub-categores (see Box 3.2 for defntons of the seven PSE categores and varous sub-categores]. The PSE category values can be expressed as shares of the PSE, wth the sum of the category shares equallng 100%. Alternatvely, they can be expressed as shares of gross farm recepts, summng to the %PSE. Ths latter approach has the advantage of showng both the level and composton of support together. Table 11.2 and Fgure 11.4 llustrate how the composton of support to producers can be shown for a country. Table Composton of PSE (example) PSE Categores average LC mllon average Share of PSE average average Share of Gross Farm Recepts average average A. Support based on commodty output % 31% 32% 6% B. Payments based on nput use % 10% 4% 2% C. Payments based on current A/An/R/I, producton requred % 25% 3% 5% D. Payments based on non-current A/An/R/I, producton requred % 15% 1% 3% E. Payments based on non-current A/An/R/I, producton not requred % 13% 0% 2% F. Payments based on non-commodty crtera % 6% 0% 1% G. Mscellaneous % 1% 0% 0% Total PSE % 100% 40% 20% 409. Table 11.2 and Fgure 11.4 show that whle the level of producer support (%PSE) has fallen by half, sgnfcant mprovements have also been made n shftng away from support based on commodty outputs, whch s the most producton-dstortng. In , 80% of producer support arose from polces provdng support based on commodty output (category A). By , the mportance of output-based support had fallen consderably, comprsng 31% of producer support. On the other hand, payments based on current parameters (category C) had rsen sgnfcantly, from 8% of gross farm recepts n to 25% n Payments based on non-current parameters and not requrng producton (category E), whle non-exstent n , now represent 13% of producer support. Also, payments based on non-commodty crtera have been ntroduced and reached 6% of producer support In a smlar way to the PSE, the producer SCT ndcator can be broken down nto the varous polcy categores. As the producer SCT ndcator s made up of a smaller number of categores (.e. t 152 THE PSE MANUAL OECD 2010

155 Chapter 11. Interpretng the Indcators excludes categores of support whch requre no commodty producton E and F and mscellaneous payments), the usual breakdown s nto three components at the sub-category level: MPS (sub-category A.1), Payments based on output (sub-category A.2), and Other SCT (n categores B, C and D) mostly payments based on area or anmal numbers. Fgure Composton of PSE (example) 100% 90% 80% 70% 60% 50% 40% 30% 20% Mscellaneous Payments based on noncommodty outputs Payments based on non-current A/An/R/I, producton not requred Payments based on non-current A/An/R/I, producton requred Payments based on current A/An/R/I, producton requred Payments based on nput use Support based on commodty output 10% 0% Composton of producer support labels 411. When polces are classfed n the varous PSE categores, they may also be labelled accordng to certan polcy characterstcs relatng to the provson of support. Labels (see subsecton for full defntons) can be used to produce dfferent aggregatons of payments, emphassng a specfc mplementaton crtera used n the polces appled, n addton to those reflected by the PSE categores: wth or wthout current commodty producton lmts and/or lmts to payments (L) wth varable or fxed payment rates (V/F) wth or wthout nput constrants (C) based on area, anmal numbers, recepts or ncome (A/An/R/I) based on a sngle commodty, group of commodtes or all commodtes (SC/GC/AC) wth or wthout commodty exceptons (E) 412. The composton of support classfed by label can agan be presented n ether graphcal or tabular form. However, usng labels to create tables or fgures requres attenton to the scope of the THE PSE MANUAL OECD