If you know anything about the regulation of agriculture, you know it’s a mess. Subsidies distort production in rich countries, penalizing taxpayers at home and undermining the prospects of poor farmers from Thailand to India to Uganda. But here’s a nice surprise: according to the number crunchers at the OECD, overall levels of support are falling.
So what’s changed? Have politicians stopped listening to farm lobbyists?
Hardly. Most of the decline in support is a consequence of rising commodity prices. In OECD countries, the portion of farm revenue that comes out of government coffers is generally linked to crop prices – when consumers pay more, governments pay less. And the recent boom in commodity prices, driven by rapid growth in demand from China (along with the diversion of corn and sugar into to alcohol production), largely explains why total support fell from 37 percent of farm income in 1986 to 18 percent in 2010.
But changes are afoot, and from a surprising place. The European Union’s Common Agricultural Policy, once infamous for such feats as stockpiling a “butter mountain” and a “wine lake,” not to mention the dumping of vast quantities of high-cost sugar on world markets, really has improved. At 22 percent of total revenues, EU support of agriculture is above the OECD average (and is still way above the United States’ 9 percent). But it is no longer competing for the badge of shame with the likes of Japan (49 percent), Korea (47 percent) and Norway (60 percent).
Equally important, the EU has shifted much of its support from production- and trade-distorting mechanisms (remember the butter mountain…) to a combination of cash for farmers for not growing crops and incentive payments for a variety of largely benign activities. The latter includes everything from encouraging preservation of erosion-vulnerable land to promoting rural economic diversification (think tourism) to more humane treatment of farm animals. All told, production-distorting aid (the sort keyed to crop and agricultural input prices) fell from about two-thirds of the total to less than one-third.
Of course, no contemporary feel-good story is complete without a hint of bad news to come. Here, it’s the reality that a handful of big emerging market countries seem tempted to make the same mistakes on agricultural policy that trapped the rich countries in the 1980s. Russia is upping farm subsidies (at least until oil prices tumble again). More important, China is raising farm supports, albeit from a low level.
Beijing’s motives are understandable: hundreds of millions of rural residents, who in recent decades have been subsisting on leftovers from the Chinese economic miracle, must somehow be pacified. But the inclination to subsidize inputs (in particular, fertilizer) could prove to be a bad habit that is very tough to break. As Santayana said… you get the picture.
(This post was also published on Forbes.com.)