Brexit and the OECD challenge to subsidies

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Every year the OECD (Organisation for Economic Co-operation and Development) releases an ‘Agricultural Policy Monitoring and Evaluation Report’ which looks at and assesses the various agricultural policies of the 35 OECD nations around the world, as well as 15 ‘selected partner economies’. The 2016 version was released back in June, but BBC Farming Today brought it back into the spotlight this morning, at least to listeners of the programme. With Brexit likely to catalyse further change regarding how British farmers are supported, it’s worth taking another look at the headlines of the OECD’s  findings. You can read the highlights for yourself here or purchase the full report here but I will do my best to provide a summary below.

Of course, an assessment of the OECD nations do not provide a complete picture of agricultural trade. There are many nations that are not taken into account. However, they do account for the overwhelming majority of agricultural value added and many of them (although by no means all of them) provide market based support in the form of subsidies. Indeed, between 2013 and 2015 the OECD countries provided USD 585 billion of support to farmers and USD 87 billion on general service support. On average, 68% of this  support is on the basis of market price support and unconstrained subsidies. While subsidy support still remains high, the trend in OECD countries is actually one of falling levels of support. However, developing countries are experiencing the opposite trend and are, on average, increasing their levels of farm support. Iceland, Japan, South Korea, Norway and Switzerland have the highest levels of support. Indonesia and China aren’t that far behind and the EU, Russia and Turkey just behind them, at roughly average levels of support provision. Many countries are below or well below the average. New Zealand, famously, does not provide any subsidy support and its farmers are fully at the mercy of global markets.

The OECD make the case that current policies that favour direct market price support do not in fact increase productivity or production, even though they may be granted on the basis that they will increase food security. Those who live and farm in developing countries actually suffer as a result of OECD nations pumping money into their farms through market support. This could be pushing the governments of developing nations into providing subsidies for their own farmers who they see struggling to survive in a world of higher input costs.

In this year’s report, the OECD call on market price support to be ‘progressively eliminated’ as it places signifcant costs on the industry and much of it does not even reach the intended beneficiaries. It gets caught up in bureaucracy and those at the top of the market. Low income countries lose out massively. They also call on payments based on output to be gradually eliminated. This was done in the EU in a previous CAP reform but some argue that its replacement (pillar 1 direct payments which depend on the area of land owned) is even worse and far less fair. The OECD call for direct payments to be based on target objectives drawn from key policies. These could be to improve the viability of rural communities, to improve biodiversity, soil quality, water quality or the productivity of farms. Support could be provided on more of a grant basis which encourages inward investment. This is done already in many places but it rarely forms a significant part of the country’s farm support programme.

Brexit looms over the UK as a silent behemothic boggart. Boggarts are mythical shapeshifting spirits that are normally invisible but can appear in many forms, as human, horse, ogre, demon etc. Brexit might mean ‘brexit’, but we remain entirely unaware of the final form it might take. It seems to shape shift with every passing day. The calls of the OECD will surely form part of discussions behind the closed doors at 17, Smith Square (home to the Department for the Environment, Food and Rural Affairs) but who knows whether they will be adopted. Withdrawing subsidies wholeheartedly would likely have immense short term and long term impacts on the UK farming sector. Will it happen? If I were forced to guess I would say no. I would be highly surprised if some form of direct support does not remain. However, I believe that the ‘environmental lobby’ (a term I dislike but is a useful term of categorisation at times) will have some success in encouraging a shift towards more targeted policies towards environmental management. Support should also, I believe, be available more widely and support rural social initiatives that can help sustain rural businesses more generally and encourage prosperity within the wider rural network.

 

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