Estimating farm subsidies

China has overtaken the US to be the world’s largest provider of support to its agriculture.

Written by Harish Damodaran | Updated: December 24, 2015 6:00 am

How much of public money do countries spend on supporting their agriculture? The question assumes relevance in the context of the World Trade Organisation’s (WTO) recent Nairobi ministerial conference, where members agreed to end direct export subsidies on farm produce even while not working out any “permanent solution” to the issue of public stockholding of grains for food security purposes.

The most comprehensive measure of transfers to the farm sector is the Total Support Estimate (TSE) compiled by the Organisation for Economic Cooperation and Development (OECD). It covers producer support, general services support to agriculture and transfers to consumers through food subsidies.

At $327 billion in 2014, China’s TSE has overtaken that of US making it the biggest support provider to agriculture.

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But these numbers need to be qualified by the fact that China had 200.16 million farming households, as per its last national agricultural census in 2006. On the other hand, there were only 2.08 million farms in the US in 2014 and 12.25 million in the EU (2010). The average Chinese TSE per farmer, thus, worked out to just around $ 1,630. Against this, the average US farmer would have received well over $ 46,000 worth of support. Moreover, the average farm size in the US is 438 acres, compared to a mere 1.6 acres for China (and 35.5 acres in the EU). It means the subsidies in the US or EU are essentially going to better-off farmers.

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Where does India stand? Some idea can be had from its most recent filings before the WTO last year. In that, the total monetary value of domestic support for the agriculture was placed at $ 51.09 billion in 2010-11. This included $ 13.81 billion towards public stockholding for food security, which India has claimed to be exempt from any reduction commitments under the WTO. Again, given the large number of holdings (138.35 million, based on the 2010-11 agricultural census) and an average farm size of 2.8 acres, the total subsidy on a per-farmer basis for India may not amount to much.

In general, distinctions can be drawn between rich nations that continue to heavily subsidise their relatively small populations engaged in agriculture (US, EU and Japan); not-so-rich countries that have substantially stepped up support to their large farming populations (China, Indonesia); and those that haven’t really done so despite having huge numbers of predominantly smallholder cultivators (India). At the other extreme are countries like New Zealand, Ukraine and Brazil that barely subsidise – if not effectively tax – their farmers.

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