The 54 leading countries of the world spend roughly $700 billion a year on farm subsidies, equal to 12 percent of gross farm revenues, said the OECD on Tuesday. The average rate of producer support in OECD countries – the industrialized world – is more than double the rate in emerging and developing nations, mostly in Asia, Africa and South America, despite some “convergence” in the past two decades.
“We see many opportunities to reform policies,” said Jonathan Brooks, head of OECD’s agriculture division, during a briefing. Government transfers to agriculture are equal to $2 billion a day. The annual report on agricultural supports looked at 54 countries, “truly a global report,” said Brooks; the 37 members of OECD, five European countries that are not members, and 12 emerging and developing nations, including China, Brazil, Argentina, India, Russia, Indonesia and Vietnam.
Three-fourths of the supports flowed to individual producers and more than half of the money, or nearly 40 percent overall, was provided through policies with the greatest chance of distorting production. They include price supports, payments tied directly to production of a crop or livestock, and payments tied to use of an input such as fertilizer. Even in programs that hinge on environmental constraints, payments typically are made regardless of outcomes.
Only one-eighth of total support of agriculture is devoted to agricultural innovation systems, inspection and control systems, and rural infrastructure, said the OECD report. It recommended a gradual but steady dismantling of subsidies that distort markets or constrain environmental improvements, ideally as part of multilateral or regional agreements for reform. Steps such as mandatory “cross-compliance” –requiring environmental achievements as a condition for receiving farm supports – should be implemented where needed.
In OECD countries, producer supports amounted to 17.6 percent of gross farm revenues in 2017-19, compared to 8.5 percent in emerging and developing countries. By comparison, the rates were 28.9 percent in the OECD and 4.2 percent in the developing and emerging world in 2000-2002.
“However, this convergence seems to have halted since 2015,” said the OECD. “Most of this decline took place before 2008 and was driven by reforms in OECD countries.”
Rates have increased in Indonesia, China and Russia and decreased in South Korea, Japan, the EU and the United States in the past two decades. All the same, South Korea and Japan have rates exceeding 40 percent. A handful of producers, including China, Indonesia and the EU, have rates above the global average of 12 percent but below 30 percent. In the United States, Mexico, Canada and Russia, rates are above 5 percent but below the world average.
OECD analyst Emily Gray sounded a note of caution about the large U.S. payments of recent years. “Where we say this might become a concern is if these kinds of assistance packages start to discourage producers from adjusting to new market conditions and new climate conditions, and if they discourage the necessary adjustments that are important to improve resiliency in the long term.” Gray said her comments covered the trade-war payments and disaster relief programs created after hurricanes, floods, volcanic eruptions and wildfires.
US farm subsidies are forecast to set a record this year of $33 billion, or higher. The FAPRI think tank estimated early this month that direct payments to farmers would amount to 36 percent of farm income, its largest share since 2001.