How does general economy and agriculture sector performance influence farm producer support in the OECD countries?

Abstract

This paper assesses the effects of the performance of the OECD national economies and agricultural sectors on the farm producer support for the years 1986 to 2009. The study is complementary to the large amount of microeconomic research that highlights the importance of support to agricultural industry. Data for the analysis are taken from the OECD Producer and Consumer Support Estimates database and the World Bank World Development Indicators 2010 database. The Producer Support Estimate – PSE (expressed in absolute value, in percent of the total farm revenues and per 1 hectare of agricultural land) was taken as the dependent variable, whereas the selected indicators describing the performance of the economies (e.g. GDP per capita, unemployment, fiscal balance, government debt, government expense and tax revenue, exchange rate, agriculture share in GDP and employment, agricultural raw materials exports and imports) were the independent variables. Utilizing these variables, a simple linear regression analysis was conducted and resulted in many significant associations. In the period analyzed, there was a wide gap between the most and least farm supporting countries in terms of the annual average percentage PSE and the PSE per hectare. Substantial differences between the countries in the variability of the PSE over the time occurred. The empirical results obtained from the regression models reveal, among other, that when the countries were becoming richer, the percentage PSE was generally decreasing. Mixed results were obtained for the relationship between the percentage PSE and unemployment, as in some countries it was negative, while in the others positive. Expansionary fiscal policy exerted opposite effects on the PSE in different countries. Labour productivity in agriculture was inversely correlated with the percentage PSE.