Rethinking government support to farmers

It is becoming increasingly clear that the ways in which we produce, market and consume food need to be reconciled with environmental, economic and social sustainability. The global food system is one of the principal drivers of climate change, accounting for as much as 37 per cent of all greenhouse gas emissions. Yet despite the considerable pressure the food system exerts on the environment, chronic food insecurity continues to worsen, affecting over 820 million people. Additionally, data indicate that 80 per cent of the extreme poor (those living on less than US$1.90 per day) live in rural areas, suggesting that agriculture is failing to provide decent livelihoods to scores of rural dwellers.

One of the great challenges in achieving the requisite transformation lies in navigating the range of disparate actors that make up the food system and the various interactions between them. These relationships take place in a series of complex and entwined sub-systems, including the energy, waste management, input supply, governance and trade systems.

Governments and policymakers have tremendous power to kick-start change in this complex web of systems and actors. Effective, harmonised policy has the potential to make lasting changes in all corners of these systems. Nowhere is this more true than in the case of producers. In addition to shaping the market system in which commodities are sold, governments have the ability to directly influence the activities of producers through the kinds of support they provide.

The amount of this support is considerable. For example, from 2016 to 2018, an average of US$623 billion per year was provided to the 53 countries that encompass 61 per cent of the world’s total agricultural land. Of this total, approximately 70 per cent, or US$445 billion, was provided directly to producers in the form of subsidies to reduce the costs of inputs, payments based on land area or number of animals, or as a top-up to incomes. On average, this support represented over 12 per cent of gross farm receipts.

That said, these data mask stark differences in levels of support between countries. In OECD countries, for example, this form of support accounts for 17-19 per cent of gross farm receipts, while the corresponding figure in 12 emerging and developing economies (including China, Colombia, India, Viet Nam and the Philippines) is only 9 per cent.

Additionally, these support mechanisms are often at odds with environmental sustainability. For example, financing for inputs often comes without constraints. This can encourage liberal, non-efficient application of substances such as fertiliser or pesticides, heightening the risks to consumers’ health and to the environment. Similarly, payments based on land area and animal numbers do little to incentivise efficiency or motivate producers to mitigate their environmental impacts. This latter type of support is increasing in importance – for instance, between 2016 and 2018, 67 per cent of producer support in the European Union was disbursed in this way.

Shifting support away from mechanisms such as these represents a golden opportunity to simultaneously green agricultural production and improve resilience to climate change. Indeed, such a shift is already under way in some countries. For instance, payments may be linked to participation in voluntary programmes such as creating buffer strips or reducing the application of soil nutrients. In the European Union, 12 per cent of gross farm receipts are already derived from such conditional payments. Farmers in Ireland, for example, can opt into the Green Low Carbon Agri-Environment Scheme, choosing from among actions such as protecting vulnerable watercourses, supporting farmland birds and planting native trees to enhance the rural environment.

Realigning support to producers in ways that scale up green actions makes compelling financial sense as well. For example, investing in improved dryland agriculture and crop production alone could yield US$700 billion in returns by 2030. Yet despite these benefits, only 10 countries, plus the EU, currently allocate a level of monetary support for green actions that amounts to even 1 per cent of their gross farm receipts.

While extensive repurposing of producer support is not a silver-bullet solution to the flaws of the global food system, such actions can catalyse more sustainable agricultural practices and the production of less carbon-intensive commodities. These in turn can have knock-on benefits, including contributing to healthier diets, eliminating food insecurity and mitigating climate change.

As we begin our 12^th replenishment cycle, we at IFAD have made strong commitments to investing in resilient green practices such as these. With an overall target of building the climate resilience of 24 million people by 2025, at least 25 per cent of our portfolio of loans and grants will be invested in climate-focused activities. We know the future of rural agriculture must be a sustainable one – and we’re committed to helping producers, policymakers and governments plan for, and benefit from, forward-thinking avenues of support.

 

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Publication date: 11 March 2020