Government policies providing more than USD 500 billion to farmers every year distort markets

The latest edition of the OECD’s annual Agricultural Policy Monitoring and Evaluation report shows that the support policies implemented by the 54 countries studied – all OECD and EU countries, plus 12 key emerging economies – provided on average USD 536 billion (EUR 469 billion) per year of direct support to farmers from 2017 to 2019. Half of this support came from policies that kept domestic prices above international levels; such policies harm consumers, especially poor ones, increase the income gap between small and large farms, and reduce the competitiveness of the food industry overall. At the same time, six of the countries implicitly taxed farmers by USD 89 billion (EUR 78 billion) per year by artificially depressing prices. These policies further added to market distortions.

By contrast, most countries spend comparatively little to underpin the long-term performance of the agricultural sector: across all 54 countries in the report, expenditures for research and development, infrastructure, biosecurity and other enabling services amounted to just USD 106 billion per year. Subsidies to consumers account for a further USD 66 billion per year. Total support to the sector – comprising aid to producers (USD 536 billion), consumers (USD 66 billion) and for enabling services (USD 106 billion) — therefore added up to USD 708 billion per year.

Despite productivity gains in the past decades and some recent initiatives to improve the sector’s environmental performance, the overall pace of policy reform has stalled. Support levels have changed little over the past decade and there has been little progress in moving towards instruments that impose fewer distortions on production and trade. As a further consequence, the environmental performance has been mixed. In particular, greenhouse gas (GHG) emissions from agriculture have increased in most countries.

The OECD report also provides information on government responses to the COVID-19 pandemic which include significant relief measures to support consumers, farmers and other agro-food actors and to keep food and agricultural supply chains moving. While many countries are focused on facilitating trade as part of their efforts to maintain supply chains, some have imposed temporary trade restrictions which can undermine supply in both the short and longer-term. Going forward, the OECD report says, countries should shift to deeper investments in building the long-term resilience of the food and agriculture sectors.

“Globally, more than one of every nine dollars of gross farm receipts continues to flow from public policies. In some countries, it is one in two dollars,” said OECD Director for Trade and Agriculture, Ken Ash. “Governments need to invest in well-functioning food systems – but most current support to agriculture is unhelpful or even harmful. As countries struggle with strained budgets from COVID-19, this is a moment to reduce distorting agricultural support and refocus efforts and limited resources on achieving better results for agriculture and society overall.”

Governments can take a number of policy actions to make their agriculture sector more productive, sustainable and resilient:

  • Phase out distortive policies, including price support and budgetary support closely linked with agricultural production and input use.
  • Reallocate funds toward key public services to the sector for improving productivity, sustainability and resilience, or to well-targeted support for the provision of public good outcomes such as biodiversity.
  • Focus on more ambitious environmental outcomes through less distortive, more efficient and more targeted policies.

The OECD’s annual Agricultural Policy Monitoring and Evaluation report provides up-to-date estimates of government support to agriculture for all OECD members (including Colombia, which joined the Organisation in April 2020) and the European Union as a whole, plus key emerging economies: Argentina, Brazil, People’s Republic of China, Costa Rica, India, Indonesia, Kazakhstan, the Philippines, the Russian Federation, South Africa, Ukraine, and Viet Nam.

On July 16, the OECD and FAO will issue the 2020-2029 edition of the OECD-FAO Agricultural Outlook. This will provide a comprehensive medium-term baseline for projections for agricultural commodity markets at national, regional and global levels, along with an initial scenario exploring COVID-19 impacts. Based on this picture, the report will provide further insights and policy options on how to enable more productive, sustainable and resilient global agricultural and food systems.

Read the OECD Agricultural Policy Monitoring report in English at https://www.oecd-ilibrary.org/agriculture-and-food/agricultural-policy-monitoring-and-evaluation_22217371.

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