Chapter 4. Benchmarking agricultural policies: PSE results
Argentina’s policies have burdened the agro-food exporting sector for most of the last two decades. Producer support was estimated to have a negative value of -14% in 2015-17, showing the impact of these policies on farmers’ receipts. The %PSE was as low as -39% in 2008-10. This negative value is an outlier compared with most other countries covered by OECD monitoring and evaluation. The current administration eliminated all export taxes with the exception of those on soybean in 2016, and this has been reflected in the reduction in the absolute value of the negative PSE. Given that soybeans represent a big share of the value of production in Argentina, the PSE is likely to remain negative if the export taxes on soybean remain. The new temporary tax on all exports introduced in September 2018 is not yet reflected in the estimates of support. Direct payments to farmers are marginal. General services on Knowledge and Innovation and Inspection are significant. However, the Total Support Estimate (TSE) remains negative.
4.1. Introduction
This section provides a quantitative evaluation of support allocated to Argentinian agriculture between 1997 and 2017. This evaluation is based on OECD indicators of agricultural support, including the Producer Support Estimate (PSE), Consumer Support Estimate (CSE), Total Support Estimate (TSE), General Services Support Estimate (GSSE), and others indicators (Box 4.1). The definitions of these indicators are presented in Annex C. The “PSE Manual” (OECD, 2016[1]), a detailed description of the methodology applied by the OECD to estimate agricultural support, as well as the comprehensive databases for OECD countries and a number of non-OECD countries are available at www.oecd.org/tad/support/psecse. The methodology applied in this study is consistent with that used in OECD reports that monitor and evaluate agricultural policies in other countries (OECD, 2017[2]). Technical details of the calculations for all support indicators in Argentina are set out in Box 4.1.
4.2. Unlike most other countries Argentina has negative producer support
The percentage Producer Support Estimate (%PSE) is the OECD’s key indicator to measure support to agricultural producers. It expresses the monetary value of support transfers to agricultural producers as a percentage of producer gross receipts. As it is neither affected by inflation nor the size of the sector, it allows comparisons in the level of support to be made both over time and among countries. This indicator provides insights into the support or burden that agricultural policies place on producers, consumers and on taxpayers, through negative or positive market price support or through budgetary transfers.
In most of the countries studied by the OECD, market price support (MPS) is positive or zero. A positive MPS reflects that the support measures make domestic prices higher than international reference prices. MPS close to zero indicates that domestic prices are aligned with world prices. Negative MPS reflects interventions on prices that lead to domestic prices below international reference prices. Argentina’s estimations show that the agricultural sector has been heavily burdened over the last two decades, with domestic prices below world market levels, resulting in negative MPS. This implies transfers from producers to first consumers or buyers of the primary agricultural product, i.e. millers and processors in the industry, who can buy cheaper inputs. Taxpayers also benefit via the government revenues from export taxes.
The average level of producer support in Argentina, expressed as a share of gross farm receipts (%PSE) was -14% for the 2015-17 period. This negative number indicates how much public policies have reduced producers’ gross farm receipts. Negative MPS has been the main component of the PSE in Argentina, while budgetary support (different types of subsidies) has been relatively low and offset only marginally the negative MPS. This negative level of support is an outlier in comparison with OECD countries, as well as other emerging economies, where the agricultural sectors receive significant support (Figure 4.1). Only Ukraine, India and Viet Nam have also a negative level of support as measured by the %PSE (OECD, 2018[3]).
1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
2. The OECD total does not include the non-OECD EU member states.
3. 2014-16 instead of 2015-17 for India.
Source: (OECD, 2018) “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
Argentina’s negative %PSE represents the sum of a large negative price support (derived from export taxes) and a small positive support (certain types of subsidies or budgetary payments provided to farmers and a relatively small positive MPS for certain products). Both components to some extent offset each other and therefore need to be interpreted carefully (Figure 4.2). The negative MPS is a consequence of different measures, but is mainly due to export taxes on key agricultural products such as soybean, wheat, maize, sunflower and beef. The positive part of the support represents mainly subsidies for tobacco and other subsidies for variable and fixed inputs, including those provided through preferential interest rates. When these two components (negative and positive support) are added up, they only partially cancel each other out, and negative results largely dominate the policy effects in Argentina.
Argentina systematically has negative %PSE values since 2002 when export taxes on its main commodities were introduced, with high negative support of around -30% over 2002-15. The largest negative value coincides with the world price spike of 2008 that resulted in a record high level of export taxes in Argentina (Figure 4.2). This type of policies and their continuous adjustments create uncertainty and may exacerbate the volatility of world prices (FAO, IFAD, IMF,OECD, UNCTAD, WFP, the World Bank, the WTO, 2011[4]). Under the reforms introduced by the new government, negative price support has been gradually reduced since 2016.
Source: (OECD, 2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
4.3. Most negative producer support is a reflection of highly distorting export taxes
The way in which support is delivered to farmers merits as much attention as the level of support itself (whether positive or negative). The composition of support shows how positive producer support is provided and negative producer support is imposed, with different impacts on the agricultural sector and on the distribution of benefits across society. Support may be given through MPS or input subsidies, it may take the form of a payment per hectare or per animal, of compensation to producer income or through export refunds. On the other hand, instruments such as export bans and export taxes are taxing the sector (negative support). These distinctions are important: depending on how it is delivered, support has varying impacts on agricultural production, trade and incomes.
Market price support is directly linked to commodity output and can have a significant effect on production and trade. This type of support – be it positive or negative –qualifies as the most trade-distorting form of support. Moreover, MPS is less effective in increasing (or decreasing) producer income than other types of support, such as direct payments to farmers or taxes on assets that are less attached to commodity output. Negative market price support “taxes” producers with low prices, creating at once a disincentive to produce and a transfer from producers to government through public tax revenues (if there is a tax) and to first consumers through lower prices. Both positive and negative market price support, either of which by definition applies on a commodity-by-commodity basis, distort relative production incentives across individual commodities.
Negative market price support imposes additional consequences on domestic consumers by providing a positive transfer to first buyers, i.e. processors, who buy their inputs at lower prices than those in the world markets. However, this transfer is less efficient in improving poor consumers’ welfare than targeted measures like social policies focused on the poor. Negative MPS mainly benefits the processing industry and other elements of the value chain which only partially passes through the price reduction to final consumers. While positive MPS typically has negative impacts on the environment, there is no evidence that negative support improves environmental outcomes, which often depend on more targeted regulations and environmental measures.
For Argentina, the major components of the MPS are the price differential (the negative gap between domestic producer price and reference price) for soybeans, maize, wheat, sunflowers, beef, and poultry. The aggregate value of MPS is the outcome of implicit taxation through negative price gaps for some commodities (a negative MPS) and small price support of others (a positive MPS). Annual variations depend on movements in world prices, domestic prices and exchange rates, changes in production levels and, in the case of Argentina, the rates of the export taxes (Chapter 5).
Note: A (area planted), An (animal numbers), R (receipts), I (income).
Source: OECD (2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
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Table 4.1. Argentina: Estimates of support to agriculture (provisional), USD million
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Note: NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. |
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A=area planted), An=animal numbers, R=receipts, I=income. |
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1. MPS commodities for Argentina are: wheat, maize, soybean, sunflower, fruit and vegetables, milk, beef, pigmeat, poultry and eggs. MPS is net of producer levies and Excess Feed Cost. |
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Source: OECD (2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database. |
Budgetary transfers account for almost all the positive producer support to the sector in Argentina and comprises different types of payments (Figure 4.3, Table 4.1 and Annex D). Payments based on output are made to tobacco farmers through the Special Tobacco Fund (FET), and some milk payments also exist. Most of the payments based on input are in the form of preferential interest rates for agricultural credit from FINAGRO, FONDAGRO, PROSAP and FET. These credits serve to finance fixed capital formation such as the acquisition of machinery and equipment, but also working capital and variable inputs, particularly for seeds and fertilisers, as well as other payments to farmers based on the provision of services. The majority of all these subsidies is provided to small-scale farmers that produce other agricultural products than grains and beef, and who are embedded in “regional economies” (Economias Regionales) surrounding the Pampas region. Furthermore, these transfers are relatively modest in the overall scale of support. Argentina provides almost no payments per hectare, or any direct income support of the kind that is common in some OECD countries.
4.4. Support is provided to first buyers of primary agricultural products
The Consumer Support Estimate (CSE) measures the cost (or benefit) to consumers arising from market price support policies and food subsidies, and is measured at the farm gate level. A negative CSE indicates an implicit tax on consumers (i.e. consumers pay domestic prices that are higher than international prices), while a positive CSE suggests an implicit support (i.e. consumers pay domestic prices lower than the international prices). In the OECD methodology, the consumer is understood to be the first buyer of these products, which can be a processor or wholesaler, or a retailer and in some cases a final consumer. In the absence of consumer support policies, CSE generally mirrors MPS in broad terms. The CSE also includes budgetary food subsidies for consumers where they exist, which is not the case in Argentina in recent years.
When the CSE is positive, first buyers are able to purchase the product at a cheaper price in the domestic market (an implicit subsidy). This is the case in Argentina. First buyers of agricultural products (e.g. processors) benefit from lower prices of grains, meat and oilseeds. Similar to the PSE, the CSE can be expressed in relative terms as a percentage of consumption expenditures (%CSE). A negative CSE indicates that consumers are paying more than they would in comparison to border prices (an implicit tax). In the majority of countries monitored by the OECD, consumers (i.e. first buyers) are taxed in this way. In some countries this burden is partly or fully compensated through direct budgetary subsidies to poor consumers or various forms of food assistance, such as the food stamps policy in the United States or Liconsa in Mexico. A positive CSE (as in the case of Argentina) does not translate into an effective social policy of low final consumer prices: this is due to weak price transmission in the value chain and lack of targeting to the poor (Chapter 5).
The average percentage CSE for Argentina is estimated at 7% for 2015-17. This indicates that first-stage consumers pay farm gate prices that, on average, are reduced by 7% due to public policies (Figure 4.4). In other words, policies that depressed farm prices – in Argentina mostly export taxes – reduced consumption expenditure by 7% on average across all commodities, compared to what consumption expenditure would have been in the absence of these policies and subsidies. This contrasts sharply with the average of -7% observed in OECD countries on in 2015-17, which acted as a tax on consumers.
1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
2. The OECD total does not include the non-OECD EU member states.
3. 2014-16 instead of 2015-17 for India.
Source: OECD (2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
4.5. Argentina provides significant support for general services for agriculture
In addition to support provided to producers individually, the agricultural sector is assisted through the investments in activities that provide general benefits, such as agricultural research and development, training, inspection, marketing and promotion, and public stockholding. This support is considered not to be trade- or production-distorting, and it is, in general terms, well oriented to the provision of public goods, investments and services for the sector. It is measured by the General Services Support Estimate (GSSE) (as distinct from the PSE, which measures support for individual farmers).
Unlike many OECD countries, most of the budgetary expenditure on agriculture in Argentina goes to general services (GSSE) to improve the competitiveness of the sector rather than to producers (PSE). Public expenditure on such general services for agriculture in Argentina constituted around 59% of total budgetary expenditure for the sector in 2015-17, breaking down into three main categories (Figure 4.5). About 50% of total GSSE outlays were allocated to agricultural knowledge and innovation systems, in particular to the agricultural R&D and extension services institution, INTA (Chapter 6). Approximately 26% of total GSSE was provided to inspection and control services or to the animal and plant health public institution SENASA (Chapter 8). The majority of the remainder was provided for the development and maintenance of infrastructure, in particular, irrigation and rural roads. Argentina is one of the few countries evaluated by the OECD where most of the budgetary transfers are allocated to GSSE, joining Australia, Costa Rica, New Zealand and Chile.
Source: OECD (2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
4.6. Support to the agricultural sector as a whole is still negative
The Total Support Estimate (TSE) is the broadest indicator of support, representing the sum of transfers to agricultural producers both individually (PSE) and collectively (GSSE), it also includes transfers from taxpayers to consumers. Expressed as a percentage of GDP, the percentage TSE (%TSE) provides an indication of the support to (or taxation of) the agricultural sector in the whole economy. Its value depends on the degree to which the agricultural sector is supported or taxed in a country, the size of this sector and its importance relative to the overall economy.
Figure 4.6 shows the composition of the TSE for the period 1997-2017, where negative levels of MPS are the largest component. Positive budgetary transfers were relatively small, representing only 7% of the negative MPS in 2015-17.
Source: OECD (2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
Argentina’s TSE averaged ARS -67.7 billion (USD -5.8 billion) per year in 2015-17, representing -0.8% of GDP, meaning that the sector has been a significant source of public tax revenue. Large negative MPS values in most of the period 1997-2017 made the %TSE also large and negative, becoming less negative only in 2016 when several export taxes were removed or reduced. However, there have been transfers to the sector both through some payments to farmers and, in particular, through investments in public goods or general services (Figure 4.6). In contrast with the case of Argentina, all OECD countries and emerging economies have a positive TSE, with the exception of Ukraine (Figure 4.7). Taxing the sector could lead to negative consequences, such as low long-term investments and lower productivity and competitiveness in world markets.
In total, positive transfers (i.e. the sum of budgetary transfers to producers, GSSE and transfers to consumers from taxpayers, and not counting the negative market price support) amounted to 0.2% of Argentina’s GDP in 2015-17, or about 2.4% of the value of agricultural production.
1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
2. 2014-16 instead of 2015-17 for India.
Source: OECD (2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
The PSE is composed of two elements: market price support and budgetary transfers to individual farmers.
1) Market Price Support
Market price support (MPS) is based on the measurement of the gap between a country’s domestic prices and international reference prices. This price gap results from a variety of policy measures that prevent domestic prices from aligning with international levels. These policies include trade measures such as export taxes, export licences, import tariffs, import quotas, tariff quotas, Sanitary and Phytosanitary (SPS) measures, export subsidies, as well as quantitative restrictions on exports. Policies creating a price gap also include domestic measures, such as administered prices, market interventions, or public stockholding. In emerging and developing economies, the gaps between domestic and international prices may also reflect factors that are not strictly policy related, e.g. deficiencies in physical infrastructure, inadequate information and weak market institutions. Market price support creates a financial transfer from consumers through higher prices, or to consumers if domestic prices are lower than in the world market. In the case of Argentina, the MPS is calculated on the basis of the following information:
Period covered: 1997-2017
Products covered: Wheat, maize, soybean, sunflower, fruit and vegetables, milk, beef, pigmeat, poultry, eggs (see Annex B for more details on these products). In 2015-17, these ten agricultural products accounted for 85% of the total value of agricultural output in Argentina. The four crops and fruit and vegetables group accounted for 79% of the value of total crop production in 2015-17. The five livestock products represented on average 93% of total livestock production for the same period. For the purpose of the PSE estimations, products treated as net exports are: wheat, maize, soybean, sunflower, fruit and vegetables, milk, beef and poultry. Pigmeat and eggs (marginal trade) are considered as net imports.
Producer prices: For individual crops, these are prices in the Rosario market (Bolsa de Comercio del Rosario for maize, soybean and sunflower), and in the Rosario and Bahia Blanca markets (Bolsa de Comercio del Rosario and Bahía Blanca Exchange for wheat) adjusted (deducted) by transportation, processing, handling and storage margins. For livestock, they are average prices received by producers at farm gate level, recorded by the Secretariat of Agroindustry.
Reference prices: For wheat, maize, soybean (2002-17) and beef, reference prices are the export unit values (EUV) registered at the border, provided by the Secretariat of Agroindustry (sourced by INDEC/COMTRADE), with margin adjustments (deduction of transportation, handling, storage margins and port and trading expenses). For milk, the reference price used is calculated from the export unit values for both butter and skimmed milk powder. For pigmeat and eggs, reference prices are derived from producer prices and the Most Favoured Nation (MFN) import tariff. The reference price is derived from the export tax for sunflowers and for soybean before 2002. The US producer price is used for poultry.
Marketing margins: Marketing margins are estimations of processing, handling and transportation costs for a given commodity and estimated from data provided by the Secretariat of Agroindustry, sourced by Bolsa de Comercio del Rosario and the Márgenes Agropecuarios magazine. For milk, the processing margin of butter and skim milk powder is an average margin of four major milk exporters: Australia, New Zealand, the European Union and the United States (average margin of AUS, NZ, EU and US). For beef margins, processing costs were estimated as a percentage of the border price. Handling and transportation costs from the border to the wholesale markets and from the farm gate to the wholesale markets were also estimated as a percentage of the border price. For sunflower, pigmeat, poultry and eggs, margins were not used, as import tariffs, export tax or producer price from another country were used to calculate the market price differential. Different margins were used to estimate producer prices and reference prices of different commodities (Table 4.2).
Price gap estimates. For all the individual products, price gaps are calculated as the difference between the producer price and the reference price, except for sunflower, for which the export tax rate is used, and for pigmeat and eggs, for which import tariffs are used. In line with the OECD methodology, the negative market price differential was set to zero for milk as from 2016, for beef in 2016 and 2017, for maize in 2017 and for wheat in 2016-17 as no export tax nor other market price policies taxing producers were applied to milk or beef producers during these periods.
A “zero price gap” was used for beef when positive gaps were obtained (1997 to 2001) and for maize (2016), as the estimated positive price gap was not reflecting the actual policy to beef and maize over these years. The price gap for the group of fruits and vegetables has been set at zero for the whole period 1997-2017. The large majority of the fruits and vegetables in this group are exportable and no tax or support policies have been identified for the exported fruits and vegetables.
2) Budgetary support
Budgetary support comes from government revenues. Budgetary information for 1997-2017 was provided by the former Secretariat of Agroindustry, now Secretariat of Agroindustry.
References
[4] FAO, IFAD, IMF,OECD, UNCTAD, WFP, the World Bank, the WTO, I. (2011), Price Volatility in Food and Agricultural Markets: Policy Responses, Interagency report for the G20.
[3] OECD (2018), Producer and Consumer Suport Estimates, OECD Statistics Database.
[2] OECD (2017), Agricultural Policy Monitoring and Evaluation 2017, OECD Publishing, Paris, https://doi.org/10.1787/agr_pol-297-en.
[1] OECD (2016), OECD's Producer Support Estimate and Related Indicators of Agriculture Suport: Concepts, Calculations, Interpretation and Use (The PSE Manual), Trade and Agriculture Directorate, http://www.oecd.org/tad/agricultural-policies/full%20text.pdf (accessed on 07 June 2018).