Food Matters: How The Agricultural Subsidies of Wealthy Nations Hurt the Global South
In the summer of 2022, then prime minister Liz Truss introduced a multi-million pound aid package for African countries struggling with food shortages triggered by Russia’s war in Ukraine. This seemingly altruistic act exposes a deep hypocrisy at the core of almost all wealthy countries’ agricultural policies. When politically convenient, short-term solidarity with the developing world is loudly proclaimed. When meaningful long-term assistance is requested, time and time again pleas for help fall on deaf ears.
Via their excessive use of agricultural subsidies, higher income nations continue to worsen poverty and exacerbate food insecurity in the world’s least developed countries. Meanwhile, their own government budgets are drained and local environments damaged. If the UK government genuinely cares about developing countries, and its own citizens, it must acknowledge that short-term media friendly aid packages will not suffice. Agricultural subsidy reductions across the developed world are imperative.
Good intentions, bad consequences
The basic case for some state intervention in agriculture is relatively strong. The price of agricultural goods — like any primary commodity — is highly volatile. The need to ensure production, despite periods of low prices, is vital given the obvious role food plays as a primary good and basic need. It therefore makes sense that the state should provide farmers with some level of assistance. Subsidies ensure that farmers maintain a certain level of production and stay in the industry, regardless of domestic or global market trends.
In the wake of war in Ukraine and the on-coming climate crisis, defenders of government policy may additionally argue that in an increasingly tense geo-political environment, protecting domestic food production is key to preserving national security. If Putin’s Black Sea blockade has taught us anything, it’s that an over-reliance on food imported from abroad risks vulnerability to extortion.
These foundational arguments legitimising some state intervention are undeniably valid. However, when we consider the size of existing subsidies, their harmful excess becomes apparent. In total, OECD countries spent just under $300 billion on agricultural support in 2021, $107 billion of which came from the US. In 2019 the EU spent €57.9 billion on agricultural subsidies. This accounted for 56% of their total budget. Despite being relatively smaller than these giants, the UK still spent $8.2 billion last year on the same policy.
The Harmful Reality of Excessive Agricultural Subsidies
The damaging consequences of excessive subsidies are four-fold: they inhibit the state’s ability to provide vital public services. They harm local environments by promoting inefficient farming practices. They artificially lower global food prices, negatively impacting farmers themselves, especially in the developing world. And finally, they lead to wealthy countries dumping underpriced food in poorer countries’ markets, putting poor countries’ farmers out of business, increasing global inequality.
We see this drain on government services when considering the UK’s contemporary budgetary constraints. Due to consistent real-term reductions in funding, and subsequently pay, NHS nurses were on strike throughout the first month of 2023. This could have been avoided if government expenditure on agricultural support was only slightly reduced. The planned cuts to the NHS in England for 2023 amount to £5.3 billion. It would only require a 30% reduction in agricultural subsidies to free up enough money to half this underfunding. This would greatly contribute to ending industrial action and could prevent the oncoming collapse in health service provision.
Beyond government services, agricultural subsidies harm the environment by encouraging inefficient farming practices. Providing farmers with extensive financial assistance reduces the incentive to cut costs and minimise input use. These inputs are often scarce natural resources and their extraction has serious environmental consequences. In India, for example, the state pays for energy costs associated with pumping water to irrigate crops. Consequently, Indian farms have become some of the most water intensive and least water efficient in the world. This has increased water scarcity and damaged biodiversity in the country’s fluvial ecosystems.
As well as keeping costs and inefficiencies high, excessive agricultural support keeps food prices artificially low. Subsidies allow farmers to sell the food they produce below cost without making a loss. The UN reports that two thirds of all agricultural support has this effect. Some may argue that this helps consumers, who pay less for the food they buy, and even assists farmers, who are ensured a minimum revenue. However, farmers ultimately lose in the long run as prices, and thus revenue, are kept low. Consumers also suffer as state dependent farms rely on their taxes to stay in business.
Moreover, farmers in developing countries are harmed disproportionately. In the international market they too are forced to sell their products at the artificially low prices created by wealthy countries’ subsidies. However, unlike wealthy farmers, they receive little to no government assistance. We see this evidenced in the global cotton trade. West African cotton producers are exposed to the brutality of the free market, meanwhile Chinese firms enjoy excessive state protection. Both sell their exported cotton at the same price. Thus, West African farmers make less profit from the same volume sold. We therefore see why agricultural subsidies are a source of inequality; despite harming all farmers eventually, they harm developing countries’ farmers disproportionately.
Agricultural subsidies further trigger inequality via their tendency to promote dumping. Dumping occurs when subsidised food, that is priced below cost, is exported to foreign markets. This drives down food prices in said markets and puts domestic farmers out of business. Due to unequal access to subsidies, this is almost exclusively a phenomenon where wealthy countries victimise poorer nations. In 2017 alone, 38% of wheat, 4% of soybeans, 12% of rice, and 9% of corn produced by the US was dumped on foreign markets, often in the world’s least developed countries. Some may argue here that low food prices are a source of poverty relief. However, in countries like Sierra Leone, where agricultural output accounts for 57.4% of total GDP, unemployment in the farming sector caused by dumping worsens poverty to a far greater extent.
In summary, some state assistance in agriculture is undoubtedly beneficial. Subsidies ensure sufficient food production and protect national security interests. Their excessive use, however, has meant that they are undeniably harmful overall. Domestically, they contribute to the underfunding of government services and harm local ecosystems. Internationally, they exacerbate global inequality and increase poverty in some of the world’s least developed countries. The subsequent question is therefore: why has such a harmful policy persisted?
Why Governance is Failing
Despite national-level government having the final say on agricultural policy, de facto power lies at the international level. No single state is willing to expose their farmers to free market forces without assurance that the same will be done to their competitors abroad. Consequently, substantive reform is only possible within international institutions, the most important of which being the World Trade Organisation (WTO). With 160 members, representing 98% of global trade, the WTO is the pre-eminent forum for multilateral trade governance. Unfortunately, the WTO also acts as the main impediment to meaningful reform in agricultural policy.
Since its conception, initially as the General Agreement on Tariffs and Trade (GATT), the WTO has been dominated by the interests of a select group of wealthy nations and their agro-business lobbies. Its legislative process of competition amongst members of unequal power has led to the US, EU and developed countries more broadly, dominating the organisation. Due to their economic might, wealthy nations have successfully repressed dissenting developing countries by threatening them with the use of independent trade sanctions. Agriculture has therefore been consistently excluded from the WTO’s broader liberalising agenda.
The WTO continues to permit the use of protectionism, in the form of subsidies, within agricultural production. Why? Because wealthy nations fear that their farmers will be outcompeted by foreign farmers. Wealthy countries, knowing that they can out-spend developing countries through the use of agricultural subsidies, continue to intervene in markets and ensure that their farmers prevail. This is despite evidence that subsidies produce inefficient and dependent domestic farming industries, drain government funds, harm the environment, and entrench global economic inequality.
It is nothing more than short-term thinking and self-interested nationalism that is therefore preventing us from reforming global agricultural policy and reducing excessive government expenditure in the sector. Unfortunately, short-term thinking and self-interested nationalism are very powerful forces, especially at the WTO. Beyond agriculture we have seen this demonstrated recently via the organisation’s abject failure to provide an equitable ruling on covid-vaccines.
For two years developing countries have been trying to get the WTO to waive its TRIPS agreement and loosen the intellectual property rights afforded to the covid-19 vaccine. Succumbing to the will of their pharmaceutical lobbies, wealthy countries stalled this process, leading to hundreds of thousands of unnecessary deaths in the developing world. Despite a watered down agreement having been reached in August of last year, the vaccine remains unaffordable in many impoverished countries and the resolution unsatisfactory for the majority of the developing world. Thus, we see how wealthy countries continue to dominate global trade governance, painting a pessimistic picture for possible agricultural policy reform in the future.
In combination with the historic economic rivalry fought between developed and developing countries, a new impediment to agricultural reform is emerging at the WTO: great power conflict. Due to China’s rapid growth, and the US’ subsequent scramble to contain the rising power, negotiations at the WTO have all but collapsed. Conflict over agricultural policy has been central to this impasse. In 2007, the WTO’s last multilateral trade round in Doha broke down because of this very issue.
At Doha, a coalition of developing countries pushed the US and EU to allow them legal access to import tariffs that could offset the harms of wealthy countries’ agricultural subsidies. China, despite having an enormous economy in aggregate terms, argued that it too should be allowed to use these tariffs as its GDP per capita remains low. The US, unwilling to provide China the same exemptions offered to the developing world, walked away from negotiations. Since then substantive talks to reduce subsidies, or offset their harms by allowing the use of import tariffs, have consistently failed to materialise. Neither China nor the US are willing to compromise. Consequently, the probability of future reform, as tensions between these two powers continues to increase, is depressingly low.
We could all be better off
Since the GATT and now under the WTO economic nationalism in the production of agricultural goods continues unregulated. In recent years this has taken the form of agricultural subsidies. A somewhat reasonable policy when applied moderately, is being abused by the world’s wealthiest states for purely selfish purposes. To ensure that they maintain economic superiority — and to satisfy the short-term profit seeking of their agro-business lobbies — developed countries spend enormous sums of money every year to give their farmers an unfair advantage.
This policy is greatly harmful domestically. Subsidies drain government budgets and inhibit the provision of state services. They also cause environmental damage by encouraging inefficient production. Internationally, however, they are even more damaging. By encouraging overproduction in wealthy countries, subsidies lower global food prices and lead to agricultural goods being dumped on poor countries’ markets. Both these factors put developing countries farmers out of work. Subsequently, excessive agricultural support from the developed world directly contributes to poverty production in some of the world’s least developed countries. If wealthy nations like the UK genuinely care about the plight of the world’s poor then they are morally obliged to greatly reduce their excessive, wasteful, and immensely harmful agricultural support.
