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Global Support to Agricultural Production
or Soutiens Globaux à la Production Agricole (SGPA)
Presentation, results and findings
for the United States and Europe
Download the full report
1. Why a new indicator on support to agriculture?
2. The SGPA indicator’s objectives and principles of design
3. First findings from comparing SGPA indicators in the US and the EU
4. Future uses and development
1. Why a new indicator on agricultural support?
Maximizing the effectiveness of regulation mechanisms of agricultural markets entails a detailed knowledge of budgetary and extra-budgetary expenditures earmarked for agriculture, as well as guidelines to achieve comparisons between various countries. It is not currently the case and the situation causes confusion and misunderstanding, which affect national and international strategic options regarding agriculture and food.
Policies to support agriculture are central to the European negotiations to reform the CAP scheduled to take effect on January 1, 2014, and to the discussions currently held in the United States on the provisions of a farmers’ minimum income in the next Farm Bill. The world’s other agricultural powerhouses that support their agricultural interests through specific policies have more or less the same concerns and objectives. So, it is not surprising that for the past twenty years these policies represent – beyond tariff cuts – one of the key elements of the GATT and then WTO negotiations regarding international trade liberalization and global agricultural trade liberalization.
The lack of international consensus on the agricultural question - in particular regarding reducing national support - during the past four WTO ministerial meetings held since 2003, mostly explains the failure of the talks until now.
There is an undeniable fact at the root of the failure: the lack of a common vision on the definition, perimeter and trade consequences of public financing to support agriculture by governments and public institutions. Yet, more than ever, the number of participants to the talks (153), the increase and opacity of agricultural support mechanisms mean that a better analysis of their inventory and consequences is essential. That has not been the case until today even though it represents one of the solutions to achieve a constructive debate between Northern and Southern agricultural powerhouses, as well as in relation to poorer countries.
This is why momagri launched the design of an indicator, whose objective is assessing the reality of various supports to agriculture granted by the world’s various governments and national or sub-regional public authorities, thanks to the creation of an international budget classification permitting rational and indisputable comparisons. We at momagri have called this indicator SGPA – Soutiens Globaux à la Production Agricole or Global Support to Agricultural Production.
This overview presents the methodology used in designing the indicator, its first results for Europe and the United States, as well as the its potential uses.
It is intended to becoming a required instrument for public authorities and the various involved parties in the process of defining and implementing an international governance system and the regulation of agricultural markets in Europe and throughout the world.
2. The SGPA indicators objectives and principles of design
The goals set by the SGPA indicator are as follows:
- Classifying and combining agricultural supports by public authorities, according criteria that are indistinctly applicable to every country;
- Comparing the terms and conditions of agricultural support according to its strategic purpose;
- Giving priority to a progressive approach in supporting agriculture: from direct support coupled with output levels to indirect support linked to preserving crucial or strategic interests for a given nation;
- Taking into account the impact of non-agricultural and outside budget measures, which can be considered as indirect support to agricultural businesses, such as currency policies and exchange rates;
- Representing a decision-making tool to facilitate the interpretation, mutual understanding and, in fine, the convergence of national and regional support systems, which is the raison d’être of the current bilateral and multilateral agricultural trade negotiations.
To achieve these objectives, the principles of design selected are targeting the greatest objectivity and transparency possible1 :
-The SGPA indicator is designed according to a progressive classification including 10 categories, from direct support coupled to production to support of a strategic nature. The categories from 1 to 9 involve budgeted agricultural support and the category 10 incorporates indirect support generated by currency policies and advantageous exchange rates;
- The selected criterion for classification is the end purpose of support, and thus not its conditionality or its presupposed misconstrued or disruptive consequences on international agricultural trade;
- The perimeter of analysis and reclassification of agricultural support involves the budgets of Federal Sates, Confederation States, Member States, Regions or specialized public agencies;
- The sphere covered is wide by design. It includes not only direct support granted to agriculture but also support that is not directly or exclusively targeted to agriculture, such as currency policies and exchange rates.
3. First findings from comparing SGPA indicators in the United States and the European Union
A. Support to agriculture is higher and rises faster in the United States than in Europe
For the years 2004 to 2009, total American agricultural support increased by 65 percent, rising from $98.2 billion to $162.3 billon. For the same period, total European support to agriculture increased by 21 percent (€81.1 billion in 2009 against €67 billion in 2004).
For the 2004-2009 period, total American and European support to agriculture encompass very different realities.
In Europe, the increase in agricultural support is mostly explained by and intensification of “support to farmers’ standard of living” (category 6, plus €11.303 billion), of “support to market organization and development of activities” (category 7, plus €3.382 billion), and “support to investment and financing” (category 3, plus €2.478 billion). Declines have been recorded regarding direct subsidies, support linked to output and export subsidies.
In the United States, the upsurge in total support to agriculture is mostly due by:
- An increase in budgeted support, especially concerning “public domestic food aid” (category 4, plus $36.194 billion), “support to market organization and development of activities” (category 7, plus $11.616 billion) and “support to production” (category 1, plus $2.798 billion);
- A favorable currency policy and exchange rate that represented indirect support assessed at $14.511 billion in 2009, or 12 percent of total paid support.
In relation to the size of the population, the SGPA was 2.4 times higher in the United States than in Europe in 2009 (and an average of 1.9 times higher for the 20004-2009 period).
In relation to total agricultural production figures, the SGPA was 2.7 times higher in the United States in 2009 (1.9 times higher on average for the 2004-2009 period).
B. The American policy is much more reactive to fluctuations of international agricultural prices than the European policy.
The structure and the very foundations of agricultural support in the United States and in Europe are greatly different.
In Europe, support to agriculture essentially represents direct support to farmers’ standard of living (62 percent in 2009), especially with in the Single Payment Schemes (SPSs), which accounted for 38 percent of total agricultural support paid in 2009. The support rationale is thus resolutely geared to producers, but since it is decoupled from production volumes, it is more rigid to changes in market conditions.
Conversely, agricultural support in the United States relates to production through direct support coupled to output, and to consumption through stimulus of domestic and foreign demand. This is especially the case of food aid, which accounted for over 50 percent of total US support to agriculture paid in 20095.The rationale driving the American policy thus aims to securing and boosting the US agricultural market, from upstream (farmers) to downstream (consumers), in a contra-cyclical way, i.e. taking into account market signals.
C. The meaningful impact of currency policies and exchange rates.
Currency policies and exchange rates played an essential part in the situation of European farmers––whose indebtedness has been increasing since 2000––as well as in the recorded surge in US agricultural support since 2007. In fact, this impact was all the more significant that American support mechanisms are closely connected to price fluctuations on international markets.
In 2004 and 2005, exchange rates benefited American farmers (average support estimated tat $6.4 billion) and the Fed’s intervention reference rates were lower that those of the ECB, thus lessening the debt of American farmers compared to that of European farmers (the estimated advantage for US farmers reached $1.96 billion in 2004 and $375 million in 2005). The total impact of currency policies and exchange rates in terms of support to American farmers has been assessed to $8.93 billion in 2004 and $6.23 billion in 2005.
In 2006 on the other hand, while exchange rates continued to benefit American farmers (an advantage assessed at $5.81 billion), the Fed’s intervention reference rates were higher than the ECB’s. The total impact of currency policies and exchange rates in terms of support to American farmers has been assessed at $4.39 billion in 2006.
Since 2007, American farmers are again benefiting from the combination of an advantageous currency policy compared to the European currency policy, as well as from a weakened dollar against the euro, thus putting them in a more favorable position on global markets than that of their European competitors. Indirect support to American farmers is evaluated to $14.511 billion in 20096, or nine percent of total disbursed support.
Indirect support resulting from the American currency policy and a favorable exchange rate has thus significantly increased since 2007, intensifying by just as much the support actually granted to American farmers. The amplifying or leverage effect of indirect aid has thus been assessed at close to 10 percent in 2009, against an average of 6.5 percent over the 2004-2006 period.
4. Future uses and development
The SGPA indicator intends to provide a key contribution to current discussions by highlighting the nature and scope of agricultural support, as well as budgets earmarked to that end.
Using the SGPA indicator in national and international decision-making arenas will therefore improve the comprehension and ease of comparison regarding support mechanisms.
New and more impartial bases for discussions could then be used in international negotiations.
The SGPA indication could also assist negotiations in regional or national economic groups, whether dealing with reforming the 2013 CAP or the debates related to the next American Farm Bill.
More generally, the SGPA indicator represents a decision-making tool for current or future negotiations. It concerns every country throughout the world and the various involved parties active in agricultural markets will be given comprehensive, updated, homogenous and transparent data.
In 2011/2012, the momagri think tank should apply the SGPA methodology to Brazil, Canada, Ukraine and Australia/New Zealand.
Appendix: Structure of the SGPA indicator
Category 1 – Support linked to production : Support granted to farmers contingent on output, market intervention, and support for purchases of agricultural commodities used as biofuel components.
Category 2 – Support to economic agricultural productivity : Public support to productivity, irrigation, technical support, quality improvement subsidies, support for agricultural R&D and public expenditures for agricultural education.
Category 3 – Support to investment and financing : Financing assistance to farming operations, new agricultural installations and other investment incentives.
Category 4 – Public domestic food aid
Category 5 – Export support : Export subsidies and credits, financial aid to businesses in exporting countries, foreign food aid (direct deliveries from donating nations).
Category 6 – Support to farmers’ standard of living : Additional income and decoupled direct support, income and fuel use tax breaks, insurance-related mechanisms, reduction of insurance premiums, subsidies linked to use of inputs.
Category 7 – Support to market organization and development of agricultural activities : Financial assistance for reserves, transportation and packaging, aid to market organization and development of activities, grubbing-up subsidies, fallowing incentives, relinquishing quotas, support for biofuels (excluding biomass support) and other market interventions.
Category 8 – Rural development and environmental preservation : Support for agricultural facilities and housing, environmental preservation programs.
Category 9 – Protection of strategic interests : All public expenditures regarding health preservation, food security as well as social and labor policies for agriculture.
Category 10 – Impact of currency policies and exchange rates.
1 While taking into account the availability of data.
2 The EU budget and the budgets of member states are included. The OECD indicates that budgets of member states account for 34 percent to total amount in SGPA.
3 Including Federal budget and States budgets, which accounts for 4 percent of total amount in SGPA.
4 Purchasing power parity (source: OECD)
5 This type of food aid cannot be compared to income assistance programs available to the most disadvantaged people (such as the French RSA or APL) because the US income support paid by numerous public programs––in addition to sizeable aid from charitable organizations––are at least similar. Hence, the governmental domestic food aid in the United States functions as support to distribution and sales of agricultural products.
6 The €/$ exchange rare has been over 1.35 for the past few months. This advantage therefore tends to endure. |
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