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In 2006-2008, 51% of support measures as measured
by the OECD Producer Support Estimate (PSE) took
the form of output-based payments (including market
price support) or payments based on variable inputs.
This was down from 82% in 1986-88. The reduction
corresponds to a general decline in the relative level of
producer support as a percentage share of total farm
receipts, from 37 % in 1986-88 to 23 % today (OECD
2009).
REFORMING SUBSIDIES
Box 6.5: Reforming production subsidies: example of the EU CAP
The ‘Agenda 2000’ reform of the EU’s Common Agricultural Policy (CAP) foresaw gradual reductions in market
price support and increasing reliance on direct payments, coupled with rural development programmes and
agri-environmental measures under the CAP’s ‘second pillar’.
In June 2003, after difficult negotiations, EU farm ministers adopted a compromise providing for:
• the introduction of a single farm payment for farmers that is independent from production for the CAP
‘first pillar’, whose level would be based on historical support payments;
• linkage of this payment to compliance with environmental, food safety, animal health and
animal welfare standards (‘cross-compliance’);
• a reduction in direct payments for bigger farms (‘modulation’) and transfer of this money to the
European Agricultural Fund for Rural Development to finance the new rural development policy
(the second pillar); and
• some revisions to the CAP’s market policy.
The 2008 agreement pursuant to the CAP ‘Health Check’ foresees, amongst other measures, the phasing out
of some remaining coupled payments as well as increased modulation.
Many agri-environment programmes under the second pillar have generally positive impacts for biodiversity
and ecosystems (Boccaccio et al. 2009). However, it is noteworthy that eight years after the introduction of
this reform, most support still comes under the first pillar – even though it is gradually approaching an equal
share with the second pillar.
Although less environmentally harmful than earlier support policies, the sheer magnitude of support under
the first pillar gives reason for concern, because of the limits to decoupling as well as opportunity cost considerations.
While cross-compliance and modulation do contribute to better targeting of payments for environmental
and social objectives (see Alliance Environnement 2007), it is doubtful that these instruments currently
maximise the cost-effectiveness of payments for such objectives.
Hence, progress is clearly being made, but more
reform efforts are needed:
First, more than half of all support is still directly increasing
production. In this context, the OECD
cautions that progress on subsidy reform is uneven
among OECD countries. It also notes that a significant
part of the recent decline in support levels is a consequence
of high world prices for agricultural commodities,
without any explicit changes in government
policies (OECD 2009).
TEEB FOR NATIONAL AND INTERNATIONAL POLICY MAKERS - CHAPTER 6: PAGE 15