Record support for farmers in 54 countries

Subsidies totalling nearly NZ$1.4 trillion were paid to the agricultural sector in 54 wealthy and emerging countries each year between 2020 and 2022.

The OECD’s latest Agricultural Policy Monitoring report says financial subsidies and support for agriculture has reached record levels with restrictions to free trade and production quotas accounting for NZ$667 billion, almost half of all support to the sector.

Martin von Lampe, the head of policy monitoring and evaluation with the Trade and Agriculture Directorate at the OECD, said direct financial support to farmers accounts for on average 9% of their gross revenue, which includes some in countries that have policies that reduce domestic food prices. 

“That means 9% of the receipts received by a farmer across those 54 countries is induced by policies,” Von Lampe said.

Part of the government drive to support the sector is practical – the need to produce food – but it’s also social, the retention of a country’s farming and rural heritage.

He said there is a growing trend for governments such as the European Union to use financial support to drive environmental goals in the agricultural sector.

New Zealand has minimal non-tariff barriers, he said, resulting solely from some sanitary and phytosanitary-related measures preventing imports of table eggs, fresh chicken meat and honey.

The 54-country study included the 38 OECD countries, the five non-OECD European Union member states and 11 emerging economies.

An OECD Food and Agricultural Outlook report notes that 20% of global calories consumed in the world cross at least one border as no country is entirely self-sufficient in producing all the food it consumes.

The study documents a 2.5-fold nominal increase in support compared to 2000-2002, with China accounting for a third of the total support paid in 2020-22.

India was next at 15%, the United States at 14% and the EU at 13%.

Much of the support provided is market distorting, said Von Lampe, resulting in higher prices for consumers.

“We found that a large part of that support is either not helpful or inefficient.”

Some forms of support can also lead to environmental harm but Von Lampe said some governments are decoupling subsidy payments from encouraging food production to a straight area payment.

Some governments are structuring these payments to achieve environmental outcomes such as reducing greenhouse gas emissions, enhancing water and soil quality and enhancing biodiversity and animal welfare standards.

“You look at the new [EU] Common Agricultural Policy and it has a very specific environmentally motivated direction of what farmers must do or not do to be eligible to receive payment.”

He said such payments are still modest in relative terms but are increasing.

Some support directly pays for the provision of environmental benefits not related to agricultural production itself. In Switzerland they represent between 5% and 6% of gross farm receipts

“In aggregate terms across all countries such payments are still relatively modest.”

The report also found the governments in the report have introduced close to 600 climate change adaptation policies,  though implementation, monitoring and assessment of those policies has lagged.

The OECD is undertaking an analysis on how effective these environmental policies are.

The Agricultural Policy Monitoring report says that trade barriers such as import tariffs and quotas slow or limit trade and inflate domestic food prices.

It also calculates that while the increase in support has been less than the sector’s growth, since covid-19 governments have been taking action on trade to limit disruption to supplies of food due to the Ukraine-Russia war.

Productivity growth from innovation has been responsible for historic increases in the volume of food produced and farmer efficiency, but the report notes that despite evidence these investments lead to significant long-term payoffs, they remain a small share of support to the sector.

Of the total support to the sector across the 54 countries, in 2020-22 investments in innovation, biosecurity, infrastructure, and other general services represented only 12.5% of all transfers to the sector.

This is a drop from 16% two decades earlier.

More: Wallace is visiting seven countries in six weeks to report on market sentiment, a trip made possible with grants from Fonterra, Silver Fern Farms, Alliance, Beef + Lamb NZ, NZ Meat Industry Association and Rabobank.  Read more about his findings here.