Agricultural Expenditure Priorities An EU Perspective

1
Agricultural Expenditure Priorities - An EU
Perspective

• Professor Gerry Boyle
• National Uiversity of Ireland, Maynooth
• Agricultural Policy Workshop, Chisinau, June 14th
  2006

2
Outline of presentation

• Lessons from EU and Irish experience
• EU profile of and trends in agricultural
  expenditure
• The benefits of strategic public expenditure
  policies

3
Lessons from EU and Irish experience

• Agricultural policies only play a (small) part in
  the enhancement of growth capacity
• Sound macroeconomic, public finance, public
  infrastructure, regulatory and competition
  policies, etc. are more important
• Producer subsidies will not generate sustainable
  growth a costly lesson learned by the EU
• Moldova can avoid the errors of the EU (and
  others) by progressively eliminating such
  subsidies

4
Structure of EU agricultural expenditure

• Producer Supports supports that are received
  directly by producers
• General Services Supports supports that are
  received indirectly by producers

5
Components of producer supports

• Market price supports (MPS) transfers from
  consumers via market interference
• Output payments
• Area planted/animal numbers
• Historical entitlements NEW to EU SAPS
• Input use Input constraints
• Farm income payments
• Miscellaneous
• Note items 2-7 are funded via transfers from
  taxpayers

6
Components of general services supports

• Research and development (RD)
• Agricultural education
• Inspection services
• Infrastructure
• Marketing and promotion
• Public stockholding
• Miscellaneous
• Note these items are typically funded via
  taxpayer transfers but may also be funded via
  producer levies (e.g. RD)

7
Broad trends in EU agricultural supports
8
Features of broad EU trends in agricultural
expenditure

• Overall tranfers to sector declining
  significantly in relative terms
• Major shift in structure of Producer Supports
  from consumer to taxpayer transfers support now
  more transparent and politically sensitive
• Major shift in structure of Producer Supports
  from Market Supports to other forms
• Stable trend in General Services Supports

9
Details of EU PSE trends PSE
10
Features of EU PSE trends

• Shift from highly market-distorting policies to
  less market-distorting area and animal based
  payments partial decoupling
• Single Area Payment Supports (SAPS) will grow
  substantially in relative terms full decoupling
• SAPS to decline in absolute terms their
  rationale lies outside of realm of agricultural
  policy (environment and social policies)

11
Details of EU general service supports total
12
Features of EU general service supports trends

• A third of EU general service supports now
  accounted for by expenditures on marketing and
  promotion
• Big shifts towards increasing share of general
  services in respect of RD, agricultural
  education, and infrastructure
• Big decline in expenditure on public stockholding

13
Key messages for Moldova

• Moldova should not repeat the costly lessons of
  the EU but
• Moldova is increasing producer supports when EU
  is decreasing such supports
• Moldova producer supports are highly coupled to
  production activity whereas EU supports are
  decoupled
• Moldova discriminates against smaller producers
  whereas EU supports attempt to be progressive
• Moldova supports eligibility criteria are not
  sufficiently transparent (e.g. tractor subsidies)
  unlike EU

14
Strategically driven public expenditure policies

• Taxpayer resources must be used where they create
  the greatest impact on economy-wide growth
• Public expenditure should not substitute for
  private expenditure
• Public expenditure must address clear market
  failures, e.g. provision of public goods/services
  (RD, education, etc.) address externalities
• Producer subsidies do not address market failures
  and inhibit the sustainable enhancement of growth

15
The evidence supports more spending on general
services

• Compelling evidence from a recent World Bank
  study by Allcot et al
• a reduction in the share of producer
  subidies in rural expenditures by 1 standard
  deviation can increase agricultural GDP per
  capita by 5
• Example RD can general substantial returns

16
International estimates of internal rates of
return to agr. RD
17
Well managed RD investment can pay handsomely

• Typically the rates of return to well managed RD
  activities fall in the range 40-50
• This level of return is 8 to 10 times higher than
  what might be considered an acceptable return
  on ordinary capital investment
• The Irish experience indicates broadly similar
  findings across diverse research areas

18
Rates of return for some Irish agricultural
research activities
19
Concluding remarks

• EU and OECD generally trends in agricultural
  policy expenditure indicate a growing share of
  General Service Supports in total support
• The evidence on the potential impact of this
  structural shift in terms of achieving
  sustainable improvements in rural incomes is
  compelling
• The Government of Moldova should give very
  serious consideration to a similar structural
  shift in its agricultural spending policies

20
Concluding remarks contd.

• But caution needed just because some policies
  have the potential to be highly productive (e.g.
  RD, education,etc.) very careful evaluation is
  required before additional resources are
  committed
• A complete revamp of the Modova system of public
  expenditure planning, management and evaluation
  is needed to accompany the proposed structural
  shift in spending priorities
• Thank you