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25.11.2009 Studies
 
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  • Adjustment Options and Strategies in the Context of Agricultural Policy Reform and Trade Liberalisation

Adjustment Options and Strategies in the Context of Agricultural Policy Reform and Trade Liberalisation

Osamu Kubota, OECD, 2009

Content

  • Assessment of reform trajectories and adaptation policies in several OECD countries.

Findings

  • Policies to compensate those who lose from policy change are difficult to target (it is unclear who loses how much from policy change and who receives how much from compensation payments).
  • Policies to enhance competitiveness and prepare for liberalization may shield the agricultural sector from competitive pressures and delay modernization.
  • Policies to encourage exit from the agricultural sector are beset with the problem of windfall profits (incl. payments for actors that would have left the sector anyway).
  • The agricultural sector frequently adapts better to liberalization than expected (greater efficiency, higher quality, different products) - the need for adjustment policies must not be overestimated.
  • Adjustment policies should rely, wherever possible, on generally available adjustment measures, including through the social security and tax system.
  • Adjustment policies should be targeted at suitable beneficiaries, facilitate exit from the sector and be credible (implemented as a one-off time-bound measure to accompany an irreversible policy change).

Comment

  • Governments should not micro-manage structural change - neither to improve efficiency nor to redistribute income. Social justice is ill-served by hundreds of opaque sectoral schemes. Good social policies are transparent, simple and nondiscriminatory.
  • Relatively efficient sectoral adjustment policies can be found in Australia, e.g. the Farm Family Restart Scheme (FFRS) – now renamed into “AAA Farm Help – Supporting Families Through Change” - that assists “low-income farmers who cannot borrow against their assets by giving them access to improved welfare support, as well as adjustment assistance for those who wish to leave the industry. It included income support for a maximum period of one year, grant of up to AUD 45 000 for those wishing to leave farming, access to professional advice on the future viability of the farm business, and other forms of counselling. The FFRS operates as a decision support system for farmers considering exiting the industry by giving them access to professional advice on the future viability of their business and on employment opportunities if they choose to exit the industry.“