Agricultural Policy Monitoring and Evaluation 2024

Executive Summary

Agriculture faces a multitude of challenges

National and international markets for agricultural products continue to be affected by a series of short- and long-term events, including Russia’s war of aggression against Ukraine, the evolving conflicts in the Middle East and the increased frequency and intensity of extreme weather events resulting from climate change. Export restrictions by some countries have put additional pressure on the international trading system. At the same time intensified farmers’ protests in several countries highlight the economic, social and political challenges agriculture is facing.

In light of these and other developments, agricultural policies have been both reactive and proactive, boosting the sector’s capacity to respond to current challenges and aiming to ensure that food systems are fit for purpose as future conditions evolve. Encouraging innovation has been recognised as critical for fostering sustainable productivity growth. Different approaches are emerging to increase agricultural productivity whilst at the same time reducing negative environmental externalities and enhancing environmental and social contributions of the sector. However, the growth in global agricultural productivity has slowed. Significant reform or reorientation of support towards general services, including well-targeted investments in innovation will need to be made to boost robust and sustainable productivity growth. This year’s Agricultural Policy Monitoring and Evaluation Report assesses what the role of agricultural policies can be in this context.

Support to agriculture remains high, but declined relative to its 2021 peak

Total support to the agricultural sector across the 54 countries covered by this report averaged USD 842 billion per year during 2021‑23. Transfers to the sector have declined in 2022 and 2023 relative to their peak in 2021 but remain significantly above those just before the COVID-19 pandemic. Increased output and continued high prices have boosted the value of production of the sector, helping to reduce the demand for support. Higher world commodity prices have brought down Market Price Support (MPS) by USD 28 billion (or 8%) between 2021 and 2023 and budgetary support is down by USD 30 billion (or 10%) over that same period.

Support to the sector includes transfers to producers (both individually or collectively) and to consumers of agricultural commodities. The relative composition of support has not fundamentally changed in recent years as reforms in most countries have stalled. Most support (USD 629 billion on average between 2021-23) is aimed at individual producers, with over half of the total (USD 334 billion) arising from MPS policies that lift domestic prices above world prices, and the remaining USD 295 billion in the form of budgetary support. At the same time, policies in several countries lower domestic prices for some commodities relative to world prices, generating transfers away from producers averaging USD 192 billion per year in 2021‑23. These policies often aim at protecting consumers from high world prices, or at generating border tax revenues for public budgets, but are as distortive for domestic and international markets as MPS policies that lift domestic prices.

Budgetary support to individual producers was provided based on output, input use, area, animal numbers, revenue or income, or on criteria not related to commodity production. Similar to market price support, output payments and support for the unconstrained use of variable inputs such as fertilisers or fuel are among the potentially most production and market distortive measures and jointly averaged USD 75 billion per year. Other forms of budgetary support tend to be less or not distorting, but some of them can still hamper productivity growth. Increasingly, countries link their payments to production requirements, including farming practices aimed, among others, at keeping land in good agricultural conditions. Payments linked to additional conditions can encourage farmers to take action beyond what is legally required and can be used to improve environmental, animal welfare and other outcomes relative to unconditional payments. In the past, environmental constraints have been found to often be unsuccessful in achieving their objectives and their effectiveness will depend on their design and implementation. Payments directed to the supply of environmental public goods may be more beneficial, such as the planting of hedges that provide space for insects and birds, thereby contributing to improving farm biodiversity. During 2021-23, such payments averaged USD 1.7 billion per year, less than 0.3% of all positive producer support, although this share has tripled relative to 2000‑02, suggesting significant scope for further investment in such activities. All these efforts vary in their effects and require careful monitoring and evaluation to verify their effectiveness and efficiency.

Governments also invest in general services to improve the overall performance of the sector. USD 106 billion were spent annually for such services, about 12.6% of all positive support for agriculture, a share that has declined from 16% during 2000‑02. Agricultural research and innovation, control and inspection services and agricultural infrastructure (half of which related to irrigation) are key areas here and receive 23%, 8% and 48% of these investments, respectively. Expenditures for general services have also been declining relative to the size of the agricultural sector: in 2021-23, they were equivalent to just 2.3% of the sector’s production value, down from 4.7% in the early 2000s. More specifically, estimated expenditures for agricultural research and innovation declined from 0.9% to 0.5% of the production value. These trends risk slowing advances in sustainable productivity growth.

Finally, consumers and other first-stage buyers1 of agricultural commodities benefitted from budgetary support averaging USD 107 billion per year in 2021‑23. At the same time, higher prices arising from price policies in many countries implicitly taxed consumers. Overall, consumers across the 54 countries covered were taxed in the amount of USD 138 billion, or 3% of their expenditures at farm-gate prices, which adds to consumers’ cost of living.

The global landscape of support has shifted towards some large emerging economies, as their agriculture sectors have developed and grown

In 2021‑23, almost four-fifths of all positive support to agriculture was provided in four large economies: the People’s Republic of China (hereafter “China”) (37%), the United States (15%), India (14%) and the European Union (13%). This is a major change from the early 2000s, when the European Union, the United States and Japan represented 26%, 20% and 16% of the total, respectively, whereas China and India at that time jointly accounted for less than 15% of total positive support. On the other hand, support in some other important producing countries is low. For example, Brazil, representing almost 5% of the combined agricultural value of production covered by this report, accounted for less than 1% of all positive support to the sector in 2021-23.

Regional concentration is even more important for budgetary support to consumers: 67% and 29% of these transfers were made in the United States and in India, respectively. These shares highlight the importance of domestic consumer support programmes in these countries, where they represent 56% and 27% of all positive support to the sector overall, respectively.

The shares of agricultural support in producer receipts and consumer expenditures have mostly declined, with significant differences across countries

In total, producers benefit from positive support equivalent to 12.9% of their gross farm receipts (GFR). This share is slightly higher on average in OECD countries (13.7%) than across the 11 emerging economies covered by the report (12.5%), several of whom also use negative price support (‑6% of the combined GFR across the 11 emerging economies). Taken together, net producer support across the 54 countries averaged 9% of GFR in 2021‑23, down from 18% of GFR in 2000‑02. China is the only country that increased its producer support relative to gross farm receipts since the early 2000s.

Average figures mask substantial differences across countries. On average in 2021-23, Norway, Iceland, Switzerland, and Korea all offered support greater than 40% of GFR, followed by Japan’s 33%. Levels in the Philippines, the United Kingdom, the European Union, China, Israel, Türkiye and Mexico were below 20% but still above the average. Support in Indonesia, Colombia, the United States and Canada was between 5% and 9% of GFR, while lower levels of producer support were provided in Kazakhstan, Costa Rica, Brazil, Chile, South Africa and Australia, and net producer support was less than 1% in New Zealand and Ukraine. In contrast, negative price support in some countries more than offset positive support to farmers, resulting in negative producer support in India (‑15% of GFR), Viet Nam (‑12%) and Argentina (‑10%).

Consumer support, which results from both market price support policies (which generally result in transfers paid by consumers) and budgetary support benefitting them, ranges from an implicit taxation by 38% of consumption expenditures at farm-gate prices in Korea to a 39% net support for consumers in India. Consumers in most countries are implicitly taxed by pricing policies and the pattern of consumer support is largely the inverse of producer MPS. That means little to no consumer support in Brazil, New Zealand, Chile, Türkiye, Australia, Ukraine and Kazakhstan, and positive net support for consumers in Viet Nam and Argentina due to negative price support, India (due to both negative price support and consumer assistance) and the United States (due to significant consumer assistance).

The significance of public investments in general services also varies across countries. Japan, Switzerland and Korea spend most relative to their market size, each providing the equivalent of more than 7% of the respective value of production. While investments in general services relative to the sectors’ size are generally on the decline, Switzerland, the Philippines and Chile each have increased their expenditures by more than one percentage point of the value of production between 2000-02 and 2021-23 (from 5.9% to 8.8%, from 2.5% to 4%, and from 2.1% to 3.3%, respectively). Overall, infrastructure investments (half of which for irrigation) account for nearly half of the General Services Support Estimate (GSSE), while investments in agricultural knowledge and innovation systems account for almost one-quarter. However, these latter investments have declined relative to the size of the sector: in 2021‑23, they averaged 0.5% of the combined value of production, down from 0.9% in 2000‑02.

Policies to promote sustainable productivity growth can align economic and environmental objectives

Productivity growth has been a major driver behind the substantial increase in agricultural production in the past decades. Feeding the growing world population while at the same time reducing pressures on natural resources relies on continued productivity growth. But productivity growth has slowed or stalled in many places. For many countries, accelerating the pace of innovation is seen as the main way that government policies can help restart the engine of productivity growth while minimising negative externalities. However, productivity growth alone does not guarantee improvements in the environmental or social performance of the sector. Achieving the balance between productivity and sustainability by exploiting synergies and managing possible trade-offs between these objectives is at the heart of innovation for sustainable productivity growth.

Countries have already committed to doing this. At the OECD Meeting of Agricultural Ministers in November 2022, ministers and high representatives of 42 OECD member countries and emerging economies as well as of the European Union jointly agreed to “take action to achieve sustainable productivity growth consistent with SDG 2.4”2 and to “invest in research, innovation and extension services that can facilitate sustainable productivity growth and offer climate change mitigation and adaptation solutions”.

While priorities and exact definitions differ, governments have been taking steps to promote sustainable productivity growth by developing strategies and frameworks, investing in research and development (R&D), institutions and agricultural knowledge and innovation systems, and by providing incentives to producers to develop and adopt new production methods. Many countries see innovation as a key part of their efforts, but not all countries are investing heavily in this. Spending on agricultural innovation systems was 32% of estimated general support in the OECD with little change in the past decade, but only 15% in the emerging economies, down from 26% of the GSSE in 2013 (emerging economies invest relatively more in infrastructure). Across all countries covered in this report, innovation expenditures as measured by the GSSE accounted for less than 3% of the estimated total positive support to the sector in 2021-23.

However, investment in innovation by itself is often not enough to find solutions that reconcile both productivity and environmental sustainability outcomes, and conducive policy settings are needed to ensure that environmental objectives are achieved. Indeed, public policies can be a powerful driver of the innovation system.

Governments acknowledged the need to examine harmful and beneficial support measures and committed to “intensify efforts as appropriate to reform or reorient agricultural policy, and in particular to address those support measures that are harmful to the environment, to move towards more sustainable agriculture and food systems” in 2022 (OECD, 2022[1]). In addition to the creation of appropriate disincentives for environmentally harmful practices, governments can use well-designed and targeted producer support policies to provide incentives to farmers for applying more sustainable practices and investing in productivity-enhancing equipment. Robust monitoring and evaluation of such policies will help to ensure their effectiveness. Using voluntary and mandatory constraints can change farmers’ actions on-farm, while public funds can be used to leverage private investments. Yet just 20% of support to producers is subject to some kind of mandatory constraints generally based on existing regulations targeting environmental or other outcomes, only about 5% of support is currently used to encourage voluntary and additional environmental action, and the effectiveness of such measures depends on their design and implementation. Making more effective use of producer support to promote innovation and environmental sustainability on the farm, and refocusing overall support towards targeted R&D, can better leverage public spending to deliver public goods and sustainable productivity growth.

A policy agenda for sustainable productivity growth and robust agricultural production systems

In the face of multiple tensions, and considering the continued challenges facing food systems, as indicated above, it is critical for agriculture to become more sustainable, productive and resilient. A comprehensive policy approach in this direction would entail the following elements:

• Set clear objectives for sustainable productivity growth strategies and invest in the capacity to measure results and adjust policies to ensure that sustainability outcomes are achieved. OECD’s work on the measurement of total factor productivity (TFP) and its agri-environmental indicators (AEIs) are possible avenues for measuring sustainable productivity growth in the future.

• Reduce the negative environmental impact from agricultural support by identifying and addressing environmentally harmful measures and reorienting agricultural support towards environmentally beneficial measures and key general services. This would help reverse the trend of declining investments in agricultural knowledge and innovation systems, biosecurity services and key physical and digital infrastructure within overall expenditures for the sector.

• Increase the share of producer support that is linked to environmentally sustainable production practices and make sustainable management and use of natural resources a core part of agricultural policy. Use results-based policies and continuously monitor, measure and evaluate them to improve their effectiveness.

• Better target innovation systems towards the combined objective of improved productivity and improved environmental performance to reverse downward trends observed in several OECD agri-environmental indicators, for example by setting clear environmental requirements for farmers that the innovation system can help reach.

While doing so, governments should take steps to improve the effectiveness and efficiency of their producer support measures and of agricultural markets while freeing up fiscal resources for targeted innovation and sustainable productivity growth. This requires in particular:

• Phasing out the potentially most distorting forms of support and measures that reduce the capacity of the international trading system to fulfil its role in balancing food supplies between surplus and deficit regions – a capacity that is becoming even more important in times of regional shocks and increasingly volatile growing conditions due to climate change.

• Ensuring well-functioning risk management systems, based on OECD’s established risk management framework. This involves enhancing the capacity and readiness of producers to cover normal business risks, facilitating private market solutions for insurable risks, and responding to catastrophic risks that are beyond the capacity of farmers or private institutions to bear.

• Reducing income support measures with low transfer efficiencies.

Reference

[1] OECD (2022), Declaration on Transformative Solutions for Sustainable Agriculture and Food Systems, OECD/LEGAL/0483, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0483.

Notes

← 1.  Industry consumers who transform agricultural commodities into processed products.

← 2.  Sustainable Development Goal Target 2.4: “By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems, that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding and other disasters and that progressively improve land and soil quality” (https://sdgs.un.org/goals/goal2#targets_and_indicators).