ANNEX - TERMS OF REFERENCE

The Food and Agriculture Organization (FAO), the World Bank (WB), the International Food Policy Research Institute (IFPRI)) and the Organisation for Economic Co-operation and Development (OECD) are establishing a Consortium to develop, coordinate and undertake agricultural policy indicator measurement techniques for developing countries.

The objective of the Consortium is to use the PSE/CSE framework as the common conceptual basis for policy indicator work across a number of countries, with flexibility to allow for a range of approaches and indicators of interest to the countries under review, donor agencies and Consortium partners. To allow flexibility, a “two-tiered” approach to agricultural policy reviews is envisaged, involving an initial quantification of agricultural policies for a wider group of countries, and a more comprehensive country review and PSE/CSE calculation for a smaller group of selected countries.

Tier I: Quantification of agriculture policies

Much of the usefulness of measuring agricultural support and policy distortions lies in the process itself. The inventory of policies (agricultural, macroeconomic and those directed at other sectors), the classification, description and understanding of the policy measures applied, and the careful scrutiny of the existing price, production and consumption data are as important as the actual estimates of support. The first Tier country studies involve establishing an information base and quantification of support, examining such indicators as world/domestic price differentials, domestic levels of support, border measures and related policies, institutional and regulatory regimes. The work on Tier I countries could be designed as a stand alone study or as a preliminary assessment leading to a more comprehensive Tier II review at some time in the future.

At a minimum, the analysis should identify whether producers are effectively taxed or subsidized but there would be sufficient flexibility to incorporate dimensions beyond agriculture policy analysis (e.g., macroeconomic situation, trade/development policies, structural adjustment, infrastructure, value-added processing, rural development, poverty alleviation, food security, and environmental issues) according to available resources and the particular demands of the country under review, donor agencies and Consortium partners.

The overall duties of the consultants are to assist and guide FAO to:

a) establish a methodology for measuring support to agriculture for the Tier I countries, in light of known constraints concerning data availability and quality;

b) present that methodology to the Consortium for review and discussion;

c) develop a set of guidelines for the individual country studies for collecting data, analyzing data, and presenting reports;

d) develop a long term strategy for carrying out policy indicator; and

e) suggest national capacity building plans for policy measurement training and work.

In particular, the consultants are requested to:

a) provide an overview of ongoing and past attempts to measure support to agriculture in both OECD and developing countries

(i) what has been done;

(ii) the purpose and objectives of the studies;

(iii) the commodity, country and policy coverage; and

(iv) any insights into problems encountered (methodological and logistical).

b) present a methodological approach for the coverage, definitions, criteria of classification and methods for calculating policy indicators based on:

(v) the consultants' knowledge and expertise in the issues;

(vi) the range of work on policy indicators (ongoing and completed);

(vii) the consultants' knowledge of the Consortium members; and

(viii) the specific needs of FAO's Economic and Social Department, including ESA, ESC and ESS.

Figure 1: Schema for reporting of domestic support commitments

TABLES

Table 1: Standard Measures of Producer Incentives used in Monitoring Studies

Measure	Definition	Comments
Nominal Rate of Protection (NPR)	Increase in gross revenue from sales of product relative to no-policy situation	Works well if protection is predominantly through tariffs
Adjusted Nominal Rate (ANR)	Increase in revenue after input subsidies (taxes) have been taken into account	Includes input tariffs, taxes and subsidies
Effective Rate of Protection (ERP)	Increase in value added (gross revenue less input costs) relative to no policy situation	Volatile when denominator gets small or negative
Nominal Rate of Assistance (NRA)	Increase in revenue including payments not tied to production	Improves on adjusted nominal rate if direct payments are significant
Effective Rate of Assistance (ERA)	Increase in value added plus payments	Volatile if value added is small or negative
Producer Subsidy Equivalent (PSE)	Subsidy that would give same net revenue as included polices	Incorporates chosen subsidies and transfers in easily comparable form

Source: Authors

Table 2: Classification of subsidies included in the OECD Producer Support Estimate

A		Market price support
	a	Based on unlimited output
	b	Based on limited output
	c	Price Levies
	d	Excess feed cost
B		Payments based on output
	a	Based on unlimited output
	b	Based on limited output
C		Payments based on area planted or animal numbers
	a	Based on unlimited area planted or animal numbers
	b	Based on limited area planted or animal numbers
D		Payments based on historical entitlements
	a	Based on historical plantings, animal numbers, or production
	b	Based on historical support programmes
E		Payments based on input use
	a	Based on use of variable inputs
	b	Based on use of on-farm services
	c	Based on use of fixed inputs
F		Payments based on input constraints
	a	Based on constraints on variable inputs
	b	Based on constraints on fixed inputs
	c	Based on constraints on a set of inputs
G		Payments based on overall farming income
	a	Based on farm income level
	b	Based on established minimum income
H		Miscellaneous payments
	a	National payments
	b	Sub-national payments

Source: OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation 2000 (Paris: OECD, 2000) p. 143.

Table 3: Comparison of policy coverage in FAO, OECD and USDA PSE studies

	FAO	OECD	USDA
Policies included	• market price support • deficiency payments • input subsidies • storage subsidies • transport subsidies	• market price support • direct income support • indirect income support • research and extension • structural policies • sub-national measures	• market price support • direct income support • input subsidies • research and extension • marketing subsidies • controlled exchange rates
Policies excluded	• administrative costs • income subsidies • acreage control policies • research and extension • structural policies • social security benefits	• administrative costs • social security benefits	• administrative costs • social security benefits

Source: Josling and Tangermann (1989)

FAO COMMODITY AND TRADE POLICY RESEARCH WORKING PAPERS