How useful is the PSE in determining agricultural support?

The support of the agricultural sector in developed countries plays a major role in the international policy agenda. The producer support estimate (PSE) is one of the best known measures which has been developed by OECD and is used all over the globe. In the PSE all types of support are aggregated and one of the main components (70% at OECD level) is the market price support (MPS). Here we show by means of characteristic examples that the MPS has no clear relation to basic economic measures determining support for producers as a consequence of policy intervention. The MPS overestimates the consequences of tariffs and export subsidies and underestimates the consequences of quota systems in determining producer support. Misperception of the size and directions of support may affect policy decision-making wrongly. The paper indicates that weighted average producer prices, corrected for quantity restrictions, may be more useful than the reference prices and quantities used by OECD.