Redirecting support for agriculture: a report that leaves you wanting more

In a report published on September 14, the United Nations calls on governments to “redirect support to agriculture to transform food systems”. Certainly, farmers need better support to meet the challenges of climate change, protect biodiversity, and contribute to the adoption of healthier diets. But what room do states have to reallocate aid to support the agroecological transition, while continuing to support agricultural production to limit dependence on global markets? On this point, as on others, some of the report's prescriptions, based on the presumed benefits of trade liberalization, are perplexing.    

Let us briefly summarize the argument of the document jointly drafted by the UN agencies dedicated to food (FAO), development (UNDP) and the environment (UNEP)[1]. Overall, at the global level, agriculture is supported to the tune of $540 billion, equivalent to 15 billion of the total value of agricultural production. However, the majority of this amount (73 billion over the period 2013-2018, 85 billion projected in 2030) is granted in the form of production-linked support, which leads to “a distortion of prices and [are] harmful from an environmental and social point of view”[2]. It is essentially about“price incentives, such as import tariffs and export subsidies, as well as tax subsidies linked to the production of a specific product or input”. Indeed, "These measures are ineffective, distort food prices, harm people's health, degrade the environment and are often inequitable, favoring large agribusinesses to the detriment of smallholder farmers, a large proportion of whom are women.".

According to the report's authors, the gradual elimination of these measures would be desirable, but it would cause a sharp decline in agricultural income and employment, particularly in developed countries and the main emerging countries (BRIC: Brazil, Russia, India, China). It would therefore be better, they write, to redirect support towards the provision of public goods and services conducive to sustainable development, such as research and development and infrastructure construction, and towards specific, equitably distributed aid that encourages producers to adopt practices that are more favorable to the climate and biodiversity. Income losses suffered by farmers affected by the redistribution of support could, if necessary, be offset by subsidies decoupled from production, which are credited with less negative impacts on markets and the environment. Similarly, targeted aid is envisaged to protect the poorest consumers against a possible increase in food prices due to the reduction in agricultural production resulting from the reduction in support.

This plea is based on an observation: agricultural policies, as they are usually implemented, do not respond, or respond poorly, to the multiple challenges – economic, social, environmental – linked to this sector. They must evolve to achieve the Sustainable Development Goals set by the UN for 2030. Several countries, in the North as well as the South, have already initiated reforms in this direction. From this perspective, the report plays a useful role in accelerating the process: it provides a comprehensive picture of support, documents the shortcomings of public intervention, and highlights the need for a new approach, integrating the diversity of impacts and stakeholders. Why then does it fail to convince?

First, there is a striking contrast in the report between the strength of the criticisms levelled against support for agriculture and the much more nuanced results of the simulations presented in support of them. While the official UN communiqué is critical of the "harmfulness" of production-linked support, the simulations carried out by the authors for 2030 show the complexity of the links between the type and level of aid, on the one hand, and indicators relating to climate change, biodiversity, nutrition, etc., on the other. According to these simulations, on a global scale, the impacts of agricultural support on these indicators are low, with the notable exception of agricultural income.[3]They vary greatly depending on the instruments considered (price support, subsidies), the income level of the countries (developed countries, BRIC, other developing countries) and the type of production (crops, livestock). The report also rightly points out that the diversity of the effects of agricultural support means that the potential consequences of a reorientation of aid must be examined on a case-by-case basis, i.e. country by country, in order to identify possible synergies and trade-offs to be made.

One point in particular is the link established by the report between the liberalization of agricultural trade and the improvement of the environmental sustainability of agriculture. This link is based on the fact that border measures (import protection, export subsidies), which support prices paid to producers at a level higher than that of world prices, encourage farmers to intensify their production by using more chemical inputs, which are harmful to the climate and biodiversity. But what is the scale of this impact? According to the simulations carried out by the authors, the complete elimination of the offending measures would reduce global greenhouse gas (GHG) emissions linked to agriculture and land-use change (therefore taking into account deforestation) by only 1.5 % in 2030. Even this reduction, contested by other studies, would only concern developing countries other than the BRICs: the latter, like developed countries, would on the contrary increase their GHG emissions. The effect on ecosystems would not be much more convincing: the elimination of import protection and export subsidies would lead, on a global scale, to an increase in cultivated areas (+0.16 %) and a decline in pastures (-0.2 %). The biodiversity index, which reflects the expansion or reduction of natural habitats, would decline slightly (-0.02 %). As can be seen, on the environmental level, there are generally few positive impacts to be expected from the liberalization of agricultural trade, even if, once again, these effects would vary depending on the production and the countries considered.

This observation is all the more important since border measures currently represent more than half of total support to agriculture, a share that could reach three-quarters in 2030. However, the cost of these measures is borne mainly by consumers: they are not, for the most part, subsidies paid by taxpayers, which could be redirected towards agri-environmental or other measures.[4]. Therefore, to compensate, even partially, farmers affected by the removal of import protection, it would be necessary to raise new and substantial budgetary resources. For most developing countries, which are also faced with enormous financing needs in other crucial areas (energy, health, education, etc.), this challenge is undoubtedly insurmountable.

Finally, in a context of limited fiscal resources, to what extent can aid be redirected to promote the development of more sustainable agriculture without compromising the ability of States to stimulate agricultural production? Most of them want to have adequate supplies to ensure their food security without being overly dependent on global markets. Historically, it is for this reason, and to simultaneously reduce rural poverty, that many governments have introduced strong import protections on food products and pay their farmers production-linked subsidies. However, many low-income countries, mainly located in sub-Saharan Africa, as well as some emerging countries (Argentina, India), continue to put pressure on their farmers' incomes, with negative price support.[5] that subsidies are not enough to compensate. These “anti-agricultural” policies favor the consumer in the short term, but weigh on the ability of countries to increase their food autonomy.

In fact, the various support removal scenarios explored in the report almost all result in higher food prices. Curiously, however, they suggest that the proportion of the population suffering from undernourishment would decrease marginally, due to a decline in extreme poverty: a result that would merit a counter-expertise, based on other models. In any case, given the stalemate over the past twenty years in agricultural negotiations at the World Trade Organization, the elimination of supports supposedly distorting markets is likely to remain a pious wish for a long time to come, thwarted by governments' food security concerns and geopolitical tensions. But it is pointless, even counterproductive, to wait for the hypothetical gains of trade liberalization to commit agricultural policies, in a thoughtful and concerted manner, to greater social and environmental sustainability.

[1] FAO, UNDP and UNEP. 2021. “A multi-billion-dollar opportunity – Repurposing agricultural support to transform food systems.” Rome, FAO. https://doi.org/10.4060/cb6562en

[2] According to the UN press release in French dated September 14, 2021: "The UN calls for the reallocation of $470 billion in socially and environmentally harmful agricultural subsidies."

[3] According to the simulations, the elimination of agricultural support would lead to a decrease in agricultural income in 2030 (compared to a business-as-usual scenario of continued support) equal to an average of 6 % (-14 % in developed countries, –6 % in the BRICs, +0.1 % in other developing countries). Overall greenhouse gas emissions from agriculture and land-use change would decrease by 2 %. Biodiversity, measured by the change in habitats suitable for wild flora and fauna, would improve by an average of 0.1 %.

[4] Price support resulting from import protection on agricultural products is calculated, for each product, from the difference between the price paid to producers and the world price of that product. It is therefore considered an "additional cost" for consumers. Export subsidies are financed by taxpayers, but they are much less widespread than import protection.

[5] Negative price support means that farmers receive less than the world price for a given product. The causes are varied: taxes on exported products, strict regulation of marketing channels, market inefficiencies linked, for example, to poor transport and distribution infrastructure or excessive rents earned by certain intermediaries.