Executive Summary
In 2017-19, the 54 countries covered in this report provided net transfers to their agricultural sectors of USD 619 billion (EUR 542 billion) per year.1 These net transfers included USD 708 billion (EUR 620 billion) per year of support directed to the agricultural sectors, offset by an implicit taxation of farmers in some countries worth more than USD 89 billion (EUR 78 billion) per year. Of total transfers, USD 425 billion (EUR 373 billion) constituted budgetary spending for various support programmes, the remainder being market price support.
About three-quarters of all positive transfers, USD 536 billion (EUR 469 billion) per year, was provided to individual producers, with more than half of this amount provided via instruments with the greatest tendency to distort markets, specifically market price support and subsidies linked to output or the unconstrained use of variable inputs. At the same time, six countries, in particular Argentina and India, implicitly taxed their agricultural producers by using measures that depressed the domestic prices of some commodities. While lowering the level of aggregate support, these implicit taxes also increase overall market distortions.
Important changes to policies in 2019 included some significant steps to increase agriculture’s contribution to climate change mitigation, other initiatives to improve the environmental sustainability of the agricultural sector, and the conclusion or implementation of several substantial regional trade agreements. In broad terms, however, the pace of policy reforms has stalled in recent years, with distorting support entrenched across many of the countries covered in this report.
The policy context changed abruptly in early 2020, with the outbreak of the COVID-19 pandemic. Governments introduced a wide set of policies in response to the virus and associated lockdown restrictions. These responses included the provision of various forms of support to farmers and other actors along the food chain; initiatives to keep food and agricultural supply chains moving; and the delivery of support to consumers and vulnerable populations, among others. Several countries took active steps to facilitate trade, although some countries also introduced export restrictions in efforts to ensure availability on domestic markets.
OECD Ministers of Agriculture agreed in 2016 on the need for integrated policy approaches to enable the agriculture and food sector to become more productive, environmentally sustainable, and resilient to all type of risks. Performance related to the productivity and sustainability dimensions has been mixed:
Agricultural productivity has increased across the reviewed countries over the past decade, albeit with a wide variation in growth rates.
The environmental performance of the sector, as measured by selected indicators, has been less consistent. Most countries have managed to reduce nitrogen balances, or at least see increases that are lower than the increases in productivity growth. On the other hand, for most countries, greenhouse gas (GHG) emissions per hectare have continued to grow, albeit more slowly than increases in productivity.
Progress in decoupling productivity growth from the above environmental pressures has slowed in the past decade, corresponding to a loss of reform momentum compared with the 2000s, when there were deeper reforms of market distorting policies.
A number of policy approaches are available to help agriculture become more productive, sustainable and resilient, however those opportunities remain underused by governments:
Budgetary support to the agricultural sector could prioritise innovation and the wider enabling environment. This would make agro-food systems more responsive to industry needs, societal demands and environmental pressures. Yet only one-eighth of total support goes to agricultural innovation systems, inspection and control systems, and rural infrastructure.
Governments could provide targeted payments to produce environmental public goods; however only a handful of countries adopt these policies and they represent a small share of total support for agriculture.
Instead, most governments continue to provide support to agriculture via mechanisms that do not effectively address these objectives, and often hamper them:
More than two-thirds of all government transfers to the sector across countries is provided through the potentially most distorting instruments. These support measures have the greatest tendency to retain farmers in uncompetitive and low-income activities, harm the environment, stifle innovation, slow structural and inter-generational change, and weaken resilience.
Income support is often not supportive of productivity and sustainability objectives, and disconnected from the total incomes of farm households. In cases where support is conditional on environmental constraints, the payments are typically not targeted to outcomes, which reduces their effectiveness.
Risk management measures rarely aim to build preparedness and long-term resilience in the sector. Most programmes involve subsidised insurance and stabilisation schemes, or ad hoc assistance in response to extreme events, that risk crowding out private risk management activities.
While it is too early to assess the emerging responses to COVID-19, the absence of sunset clauses on selected production-related support measures, as well as the relaxation of environmental regulations, risks creating an economically and environmentally challenging institutional path dependency.
Recommendations
Dismantle, in a gradual but consistent process, all policies identified as particularly detrimental to market efficiency and the sector’s environmental performance. The priority reform should be the sectors where high support is provided via the most distorting measures. Such reforms would reduce intra-sectoral distortions and allow markets to function better, while simultaneously reducing environmental pressures that derive from incentives to intensify production in unsustainable ways.
Phase out distorting budgetary support. This would liberate funds for more targeted policies, as well as for investments to make agriculture more productive, environmentally sustainable and resilient. Such funds could be allocated to wider societal priorities including climate adaptation and mitigation.
Remove, as quickly as possible, trade restrictions imposed in the context of the COVID-19 pandemic. This would allow the market to perform its distributing and signalling role.
Ideally, anchor reductions in distorting support and associated trade protection through the multilateral process. If that cannot be achieved, the trend towards broader and deeper regional trade agreements can offer a way forward.
Improve the efficiency of support to individual producers by targeting well-defined, quantifiable outcomes of public interest. Payments for non-commodity outputs (such as the landscape) are means to create markets for public goods, while providing agricultural producers with additional income opportunities.
Strengthen the efficiency of agri-environmental policies by successively raising baseline requirements for agricultural practices, including by making cross-compliance mandatory where relevant. More ambitious public good and environmental outcomes can be delivered through targeted support.
Integrate farm households into social security systems to reduce the need for spending on agriculture-specific income support. Governments should improve their understanding of the financial situation of farm households and target any market failures that lead to persistent low incomes within the agriculture sector.
Focus public efforts in risk management on catastrophic and systemic risks for which private solutions cannot be developed. Care should be taken that public support does not crowd out on-farm and market-based risk-management tools. Governments should prioritise investments that build farmers’ capacity to both manage current risks and to adapt to an evolving risk environment, especially under climate change.
Collect lessons from the ongoing COVID-19 pandemic, notably regarding the effectiveness of different forms of government interventions in responding to shocks and developing preparedness.
Increasingly prioritise the provision of key public services to the sector by investing in agricultural innovation systems, in relevant hard and soft infrastructure, and appropriate biosecurity systems protecting human, animal and plant health. Explore opportunities to improve the delivery of such services via digital technologies.
Improve the coherence and transparency of policy packages by avoiding the provision of conflicting incentives to market participants, and by integrating agricultural policies into economy-wide programmes, such as those related to labour markets and social security, the environment, transportation and communication, trade and other infrastructure.
Note
← 1. This report presents recent policy developments and support estimates across all OECD countries, the European Union and thirteen emerging and developing economies in 2019 and early 2020. Colombia became the 37th Member of the OECD in April 2020. In the data aggregates used in this report, however, it is included as one of the 13 Emerging Economies. This report mainly analyses agricultural policies in 2019, while synthesising emerging policy responses to the COVID-19 crisis implemented before the end of April 2020.
