The PSE approach follows the OECD framework in order to allow comparability between countries. The methodology* is currently used by 39 OECD members and emerging economies to monitor agricultural policies, including Mexico, Brazil and Chile (OECD-3). The comparability of these policy indicators (see glossary) and their modeling potential make them particularly valuable for those countries and for the region.
The PSE and related indicators’ conceptual model is based on supply/demand interactions among farmers, consumers and taxpayers, in order to measure incentives or public policy disincentives to the agricultural sector.
*You can find the methodology by clicking on this link.
The structure of the OECD support estimates can be divided into three main categories: support to the producer (PSE), support via General Services (GSSE), and support to consumers (CSE). PSE, in turn, consists of the Market Price Support (MPS) and budget transfers to producers (BT).
The MPS seeks to measure the benefit perceived by domestic producers, by the effect of border measures (tariffs, quotas, etc.) and domestic price support resulting in a price above its competition from imports. Calculations are performed for a basket of products representing at least 70% of the gross value of agricultural production on average during the three years prior to the study.
Twenty-five years ago, when the use of the methodology was first introduced as a tool for the design of sectoral policy, the composition of agricultural support in the developed world was very similar to that observed in the LAC region today: very high concentration in price support and very low concentration in support via public spending.
Since then, support policy in some OECD countries has reversed course, and the composition is now the opposite: a dominant share of support via transfers to general services (to infrastructure, development of programs for the improvement of agricultural health, inspection, research and development, etc.) and a reduced share of support via tariff policy or market interventions. PSE methodology has not only helped reveal areas where there is space for reform, but allows for the continuous monitoring and future evaluation of policy efforts/actions.