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How much do farmers get from taxpayers?

18 September 2013
by Patrick Love
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In 2008, one farmer from Blackburn in the UK got 32 pence (around $0.45) from the EU’s Common Agriculture Policy (CAP). That’s not much, but it’s still over 30 times as much as one of his neighbours, who only got a penny. At the same time, some large landowners in the UK and other countries got hundreds of thousands of euros. The food industry didn’t do too badly either, with some food processors getting around a million pounds each. The biggest payout, over £6.7 million, went to a “professional services company in the sugar market”.

Other OECD countries could show a similar pattern for farm subsidies, with the rich getting more than their less well-off colleagues. More what, though? There are problems with vocabulary in such a sensitive area. For some people, we’re talking about handouts or the less pejorative “aid” or “assistance”; others prefer the dynamism of “incentives”, or the neutral-sounding “transfers”. The OECD term “support” describes the various ways in which governments intervene in the business of agriculture, including subsidies, grants, tax breaks and other policies that boost revenues.

So what’s it worth? Over $258.6 billion (EUR 201.2 billion) in the OECD area in 2012 according to Agricultural Policy Monitoring and Evaluation 2013: OECD Countries and Emerging Economies, published today. Support represented 19% of farm receipts in the OECD, up from 18% in 2011. Support averaged one-sixth of gross farm receipts in the 47 OECD and non-OECD countries covered in the report. The Producer Support Estimate increased to 17% of gross farm receipts in 2012, compared to 15% in 2011.

It can be hard to understand the economic justification of support to farmers. If there is a surplus in supply, why should the taxpayer subsidise producers? If there is a shortfall, you’d expect prices to rise and the need for subsidies to disappear (or at least weaken). The reason usually given by governments is that agricultural policies are designed to improve the “competitiveness” of their farmers. Yet sometimes this is meant to be achieved by reducing support in the interests of imposing stronger market discipline, while at other times improved competitiveness means granting subsidies for inputs such as fertilisers; according tax concessions, for example on diesel fuel; or providing financial incentives to meet the costs of implementing new regulations.

Do the subsidies and other forms of support really help farmers? OECD research into farm household income suggests that with the most commonly used policy, market price support, only about 25% of the cost finds its way as a net income gain to the intended recipients in farm households. “Farmer” is not the first word that springs to mind when seeking to define what service companies, food processors and other large beneficiaries of support actually do. The CAP, like many other forms of support, does not target farmers, but farms or activities related to agriculture, which is why a confectionary firm ended up receiving 332 000 euros to help buy sugar.

Subsidies don’t help the hungry either. Some of the sharpest increases in farm support have occurred in countries that are trying to promote self-sufficiency, but the OECD sees only weak links between higher self-sufficiency and improved food security, particularly in less developed economies. Access to food would be more effectively improved by reducing poverty and developing safety nets.

Agricultural support policies are evolving, but only slowly. This may seem surprising given the repeated, often violent, calls for change and the massive amounts of public money being spent. Policy makers and the public alike would agree that some programmes no longer do what they were created for and should be modified or scrapped (for instance, one catering company supplying cruise ships got 148,000 euros in subsidies for the sugar and milk powder it “exported” in passengers’ stomachs).

Why is change so slow and difficult? In agriculture as in other areas, fundamental policy thinking is often born of crises, but can persist even when the original problems have been solved. Key features of agricultural policy in the United States emerged in the 1930s in response to the Great Depression and the Dust Bowl. Today’s agriculture policy in Europe and Japan can be traced to concerns with food supply at the end of World War II.

Policy shifts can be dramatic however. Airport security is one example of how things can change practically overnight. Agriculture provides examples of this too, for instance the sudden imposition of export restrictions and traceability norms in reaction to the BSE outbreak. However, despite the volatility of commodity prices and regional difficulties related to drought, flooding or other environmental conditions, food security is not a problem in the countries giving most of the support, and the agro-food system as a whole is not faced with any major threat to its existence. The sector even fared better than others during the recent recession.

Another factor to consider is who would gain and who would lose if the current system was changed. Actual numbers of people are less important in this respect than how the costs and benefits are distributed and how well-informed and politically influential they are.

Consumers pay twice for agricultural support, first through the taxes used to finance it, second through higher prices. The cost to an average European citizen is over 100 euros a year, but few people are aware of this extra sum they’re giving to the agri-food industry. For those receiving the support, much more may be at stake. The smallest farms receive relatively little support, but the big producers and industrialists who do get public money also have the means to finance sophisticated lobbying and public relations campaigns to block change that would seriously erode their privileges.

Useful links

OECD work on agricultural policies and support

OECD work on sustainable agriculture

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