It's Time to Reform Farm Support

Ken Ash

Global food demand is rising so fast that farmers are beginning to have trouble keeping up. Projected world population growth, coupled with the new eating habits of a rising middle class, are likely to continue putting pressure on prices and boosting farm income levels for years to come. Despite this strong outlook, governments in advanced economies supported farmers to the tune of US$259 billion in 2012, through a combination of price support measures and budgetary spending. A new OECD report released last week shows that support ranges from lows of less than 5 percent of farm receipts in New Zealand, Australia and Chile to highs of 50 percent and more in Japan, Korea and Switzerland. Across the 34-member OECD area total support to agriculture is estimated at almost 1 percent of GDP.

As high as these numbers are, it is important to note that support in OECD countries has been gradually trending downward. In contrast, support to farmers in many emerging economies has been rising. In 2012, public farm support reached US$219 billion in a group of seven key agricultural countries: Brazil, China, Indonesia, Kazakhstan, the Russian Federation, South Africa and Ukraine. That said, the range of support levels -- from 5 percent or less in Ukraine, South Africa and Brazil to 15 to 20 percent of farm receipts in the Russian Federation, Kazakhstan, China and Indonesia -- is smaller than the range seen across OECD countries, and the highest levels of support still remain much lower.

The type of farm support generally on offer remains the problem. Across the 47 countries covered by a new OECD report, over half of the support provided in 2012 resulted from domestic prices being kept artificially higher than world prices. This is done through various regulations and restrictions on trade, as well as government subsidies based on farm output or input use.

These policies push relatively high prices still higher, and the costs are borne disproportionately by poorer consumers. All forms of support linked to production distort the decisions that farmers make, sometimes encouraging them to 'produce for governments' rather than for consumer demand. Support linked to production also goes primarily to those that produce the most -- larger farmers, often with already healthy incomes -- and not to the poorer farm families often put forward to justify these policies.

There are alternative policies that governments can and should pursue. It is not a matter of reducing farm support to zero and 'doing nothing.' But 'business as usual' is not an option either if the global food and agriculture system is to meet the planet's food, feed and fuel needs amidst competing demands for water, land and biodiversity resources and the uncertain impacts of climate change.

Countries should be thinking about increasing strategic public investments in the agriculture sector. While priorities will vary by country, its resource endowments, and its stage of development, there will be common elements: investing more in people, in education and skill development, and in emerging economies in improved health services for rural and farm families. Also essential will be increasing public and private spending on research and development, technology transfer, food safety and food quality assurance systems and rural and market infrastructure.

By following this forward-looking advice, governments can boost social returns and contribute to the long-term productivity, profitability, and sustainability of farming. It's high time to move away from those support policies, which have their roots in the past, toward better policies for a stronger agricultural future.

Ken Ash is Director of Trade and Agriculture at the OECD.

This blog was originally published on September 24, 2013.