The political economy of reforming expensive agricultural policies

Agricultural support policy provides more than 800 billion dollars per year in transfers around the world. Such policies include a wide range of government instruments to support the agricultural sector, which are usually funded by taxpayers and consumers. These include “tied” subsidies designed to encourage producers to expand production, “untied subsidies” that avoid shifting production incentives, and market price support measures such as tariff and non-tariff barriers. Many of these measures contributed to the reduction of hunger and poverty, but they also contributed to the development of agricultural production systems. environmental sustainability by increasing greenhouse gas emissions and expanding land use. In addition, by reducing the cost of cereals, they biased consumption patterns to a diet rich in calories and poor in micronutrients. Analysis based on global modeling (see Figure 1 below) suggests that if governments redirect some of their support to agriculture towards investment in green innovation and rural infrastructure, there will be concurrent improvements in emissions reduction, land use change, farm productivity , poverty rates and nutritional outcomes.

Yet, given all these potential benefits, why is it so difficult for governments to reform these policies? In short, politics. Achieving these benefits from repurposing is only possible through internationally coordinated action, but achieving these actions also requires overcoming internal resistance. Outcomes that are socially optimal for the planet in the long term require policy shifts that could face significant resistance in the short term, especially if certain groups – from farmers to politicians to private businesses – realize they stand to lose or face significant losses . adjustment costs. IN new research workwe review some of the political economy challenges of repurposing agricultural support, highlight their role in reform processes in several case studies, and offer general recommendations for consideration by governments and development actors pursuing a reform agenda.

In particular, we identify four sets of factors that interact together to determine reform paths: interests, ideas and information, institutions, and policy characteristics. Interests refer to the material benefits that various groups derive from politics, whether it be votes, profits, or job security. Ideas such as the role of the market versus the state, or food self-sufficiency versus dietary diversity, often seep into decision-making and influence interests. Similarly, information derived from empirical analysis, media reports, or dissemination of policies from other contexts can, like ideas, induce interest groups and political actors to update their preferences. Institutions—whether economic (e.g., farmer groups, business lobbies, multilateral organizations) or political (e.g., type of regime, electoral rules, federalism)—structure whose interests, ideas, and information are supported by politicians and shape the prospects for implementation. Finally, policies have various characteristics, including visibility to the public, the time it takes to demonstrate impact, and the concentration or sharing of costs and benefits.

Figure 1. Global implications of the repurposing of domestic support for agriculture
(% change from baseline projections for 2040)


Source: World Bank and IFPRI (2022).
Note. Green bars indicate movement towards public goals; orange/red stripes indicate a departure from social goals.

Taken together, these factors have been important in understanding the experiences of agricultural support policy reforms in countries such as India, the European Union (EU), and the United States.

  • Reform of the ESP in the EU
    The EU Common Agricultural Policy (CAP), a large-scale program to support agricultural production, was first implemented in the 1960s and embodied long-standing ideas such as the priority of achieving food self-sufficiency. It also provided a venue for powerful farmer organizations to oppose internal and external market competition. Various pressures in the past decades spurred a number of reforms, including the food safety and welfare crisis in the 1990s, the accession of Eastern European countries with large agricultural sectors in the 2000s, and growing resistance to the ESP from other trading partners in the World Trade Organization. Institutional shifts in the EU, including the removal of the requirement for unanimous consent of member states, have undermined the veto power of reform opponents, helping to decouple farm subsidies from production decisions. More recently, the EU has Farm-to-table strategy, which includes payments to farmers on the condition of reducing the use of pesticides and fertilizers, the transition to organic farming methods and the introduction of new technologies that reduce greenhouse gas emissions in agriculture. However, recent food price inflation caused by the war in Ukraine increased lobby pressure from farmers and agribusiness, and some political parties are against environmental policy this will decrease performance.
  • Unintended Consequences of Biofuel Policy in the United States
    US biofuel policy was originally aimed at replacing petroleum-based fuels and lead-based additives, and was supported by a coalition of farmers and ethanol producers who together sought to increase demand for their products. A tax credit and later a biofuel mandate requiring blending of corn-based ethanol and other biofuels into fuel, known as the Renewable Fuel Standard (RFS), were used to increase incentives for biofuel production. However, several unintended consequences have emerged, including increased emissions from land-use changes required for growing bioenergy crops, which has contributed to latest grades that American ethanol has a higher greenhouse gas emission intensity than petroleum-based gasoline. Despite dozens of legislative bills introduced to reform or eliminate the Renewable Fuel Standard, it remains politically difficult change, and proponents see it as important for both farmers and national security by increasing energy independence. In the case of strange associates, opposing coalitions include both the oil industry and environmentalists.
  • Market Reform Challenges in India
    In May 2020, the federal government of India announced three major market reforms aims to reduce government intervention in the agricultural sector. These reforms, announced as part of a broader strategy to double incomes in rural areas, included allowing farmers to sell outside government-regulated wholesale markets, deregulating certain commodities so they were no longer subject to restrictions on holding stocks, and allowing farmers to engage in contract farming schemes. pricing with private processors of agricultural products, and not exclusively with government agencies. The latter was considered especially important for producers of perishable fruits and vegetables. However, the reforms were categorically against not only by the well-organized unions of small farmers in the large wheat-producing states, many of whom feared that the reforms would lead to the dominance of big agribusiness, but also by the state governments, who feared the loss of revenues levied as fines on those who sell to outside the state. – manage the markets. Distrust of the federal government’s intentions and dissatisfaction with the speed of policy announcements during the Covid-19 pandemic sparked months of protests in the country that eventually forced the government to back down.

Agricultural policy reform is often overtly political due to the sector’s central role in food consumption, livelihoods and even cultural identity. In 2022, farmers opposed proposed agricultural reforms in several parts of the world, including Sri Lanka where the ban on inorganic fertilizers was hastily introduced and then lifted, Netherlands where the government proposed to reduce nitrogen emissions for the agricultural industry in order to New Zealand where the issue of introducing a tax on agricultural emissions is considered. Given this controversy, our paper contains more important lessons for continuing efforts to achieve the SDGs through reforms in agriculture and other sectors. Remarkably, shocks open some windows of opportunity and close others, and policies can generate their own path dependencies and unintended consequences. At the same time, it is critical to build the confidence of affected stakeholders, avoid quick and participatory policy changes, and identify reform coalitions that can help maintain momentum even as other crises emerge.

Substantial efforts to reform agricultural support to improve planetary and human health require international coordination within a common framework, with financial and technological transfer benefiting countries with the least funds to repurpose. However, anticipating possible sources of domestic political resistance—and calibrating policy options and processes accordingly—is a necessary first step.