Is the Concept of the Producer Support Estimate in Need of Revision ?

The Producer Support Estimate PSE – measures the value of the monetary transfers to producers from consumers of agricultural products and from taxpayers. ~ A highly visible result of OECD work on agriculture. ~ Used to monitor the nature and evolution of policies that are often very politically sensitive. ~ Receives a lot of attention, both domestically and internationally.

Criticisms Three central Questions ISSUE Does the PSE properly reflect changes in agricultural policies and reform efforts? ASSESMENT A country may revise the nature of it’s policy instruments. E.g moving from price support to budgetary payments not linked to output. However, the overall support to farmers may have remained constant. Looking only at PSE figures the countries positive reform efforts may not be apparent. RESPONSE The OECD has placed increased emphasis on the composition of support from different cateogories of policy measures which makes it possible to assess changes in policies and reform efforts.

2. Do world market conditions distort the PSE? Issue 2. Do world market conditions distort the PSE? Assesment • A country’s PSE may vary over time , even if policy settings in that country have not changed. • This is due to the fact that the calculation of the market price support component of the PSE is based on the gap between producer and border prices. • Can cause a problem, as when border prices change, market price supports can also vary, even though nothing has changed in the domestic policy. Response As border price fluctuations cannot be removed from the calculations The OECD is increasing efforts to communicate PSE results more effectively by clearly pointing out these sources of variations in support levels.

3. Are actual world market prices a proper reference point for PSE? Issue 3. Are actual world market prices a proper reference point for PSE? Assesment •It has been argued that actual world market prices are depressed as a result of current agricultural policies in the OECD area hence inflating the market support component of the PSE. •Suggested that it would be better to use equilibrium world prices in the calculation to reduce these effects. RESPONSE •This would be inappropriate for the OECD as the PSE is a measure of policy effort, and the intensity of effort needed to keep domestic prices at given levels depends on actual, not hypothetical world prices. •Also for policy dialogue among Governments indicators based on anything but actual prices would provide distorted information.

Conclusion A review of these criticisms of PSE does not indicate a need to revise the concepts used by the OECD. However, There are good reasons for the OECD to strive to communicate PSE results more clearly and effectively in order to avoid misinterpretation of the figures.