Executive Summary

Support to agriculture continues to grow

Total support to agriculture reached USD 851 billion per year during 2020-22 for the 54 countries covered by this report. This is a historical high and an almost 2.5-fold increase compared to 2000-02, even if below the 3.6-fold growth in the value of agricultural production. Support to the agricultural sector includes transfers to producers (both individually or collectively) and to consumers. Most producer support hinders climate change adaptation, often is market distorting, and risks harming the environment.

Support remains highly concentrated in a few large producing economies: the People’s Republic of China (hereafter “China”), now representing 36% of this total, has emerged as the country providing the most support, displacing large OECD economies which have historically held that role. India, the United States and the European Union, all large agricultural producers as well, now represent 15%, 14% and 13%, respectively. Overall, China and India, although different in the structure and implications of their agricultural policies, together account for 87% of the support provided to agriculture in the covered emerging economies. In turn, the United States and the European Union provide close to two-thirds of support among OECD countries.

Across the 54 countries, USD 518 billion per year was paid from government budgets, with the remaining USD 333 billion per year being provided through policies lifting domestic prices above reference prices. Both have continued to increase over most of the past five years. That said, higher prices on international markets resulted in lower price support and counter-cyclical budgetary transfers in 2022. Global agriculture has experienced exceptional conditions with Russia’s war of aggression against Ukraine hitting agricultural markets that were still recovering from the impacts of the COVID-19 pandemic.

In terms of direct beneficiaries of support, USD 630 billion per year was transferred to individual producers during 2020-22. This positive producer support accounted for 14% of gross farm receipts across the 54 countries covered in the report, with significant variation between them. While this average represents a decline compared to the 20% measured for 2000-02, it has changed little since the early 2010s. In 2022, two countries, Costa Rica and Israel, took steps to reduce market price support. However, efforts to reform support have largely stalled over the past decade. More than half the producer support was provided through higher market prices paid by consumers, while the remaining USD 297 billion per year was transferred from public budgets and hence paid by taxpayers. Policies in several countries suppress domestic prices for some or most commodities, generating average annual transfers of USD 179 billion away from producers in 2020-22, a more than seven-fold increase from the USD 24 billion two decades earlier and on a strong rise in recent years. Differences in support across commodities, and the co-existence of significant price support for some products with price-depressing policies for others, add to the distortions generated by the overall price support, including within individual countries.

Finally, consumers and other first-level buyers of agricultural commodities received USD 115 billion per year in budgetary support during 2020-22, a four-fold increase relative to the beginning of the century. Despite this increase, however, this budgetary support did not, on average, offset the higher prices induced by trade barriers and other price-increasing policies. Overall, consumers were implicitly taxed by close to USD 150 billion per year, or 4% of their expenditures at farm-gate prices, down from 10% implicit taxation 20 years earlier but still adding to consumers’ cost of living.

Governments have taken significant policy actions to limit the market impacts of the war in Ukraine and to address inflationary pressures more broadly

While the economic effects of the COVID-19 pandemic are still lingering, the war in Ukraine has further disrupted international markets and value chains for both agricultural commodities and key inputs, notably energy and fertilisers. Many governments have extended emergency measures or put in place new ones to assist producers and consumers. These include helping Ukraine to continue to produce and export, reducing import barriers for food and fertilisers, and providing support to compensate for rising input costs. Countries also provided additional support to partly shield consumers from rising food costs.

At the same time, some countries have also implemented additional export barriers that added to pressures on international markets, increased market uncertainty and risk increasing global food insecurity, as was the case for those put in place during the COVID-19 pandemic. Others eased or suspended environmental requirements to encourage domestic production and increase global commodity supplies, or subsidised fertiliser and fuel, which may result in environmental degradation.

Governments are scaling up efforts to help agriculture adapt to climate change…

In addition to these acute crises, climate change is increasingly affecting agricultural production worldwide through increased variability of temperatures and rainfall, disruptions to ecosystem services, and a slowdown of productivity growth. Agriculture faces an increasing frequency and severity of extreme weather events, including droughts, floods, heat waves, and storms. While some regions may benefit from longer growing periods, production in most parts of the world urgently needs to adapt to less favourable and more variable growing conditions.

This report identifies close to 600 measures for climate change adaptation in agriculture adopted in the countries covered. Among the adaptation programmes, social, economic and institutional measures, such as adaptation planning, investments in capacity-building, provision of climate services, and creation of financial and insurance mechanisms, are most prominent. Together, they jointly account for 61% of all adaptation measures. Other initiatives, which are more targeted to finding solutions for farmers and farming systems, such as various ecosystem-based approaches, infrastructure and technical solutions, and behavioural approaches, together account for the remaining 39% of the total.

…but further actions and reforms are urgently needed

Effective adaption of agriculture to climate change will require further actions. Governments should move beyond planning and urgently advance implementation, monitoring and assessment of adaptation measures. Policy approaches for a more resilient agriculture should balance efforts to support short-run recovery from climate and other shocks, with medium-term incremental adjustments to changing conditions as well as the long-run transformation needed when existing systems become untenable. Although the context matters, it is essential to evaluate to what extent the programmes developed by countries contribute to strengthened resilience.

The growing number and severity of extreme weather events, together with other shocks, have made what was once considered exceptional situations increasingly common. Preparing agriculture for a future where climate change introduces new risks and exacerbates existing vulnerabilities calls for agricultural policies that encourage agility and incentivise adaptation in a changing environment, yet most support reinforces existing production structures. The continued prominence of market price support in many countries, together with other forms of support that are potentially production and market distorting or commodity-specific, discourage changes in production systems. These types of support also distort international markets, which remain a key mechanism to smoothen the impacts of shortfalls or bumper harvests. Avoiding trade barriers to the extent possible therefore contributes to the resilience of agriculture and food systems.

In parallel, countries should urgently enhance their efforts to reduce agricultural greenhouse-gas (GHG) emissions given that 11% of global anthropogenic emissions are directly agriculture related (with an additional 11% related to land-use change that often is linked to the expansion of farming). Several countries have updated their economy-wide mitigation targets, and an additional five countries have joined the Global Methane Pledge calling for reducing global methane emissions. Still, today only 19 of the 54 countries covered in this report have put in place some form of mitigation target for their agricultural sector. Mitigation efforts in agriculture are essential to meet the 1.5-degree target stipulated in the Paris Agreement. This requires adjustments to production structures and methods, calling for reforms to the same support policies that are hindering adaptation, and further reinforcing the importance of transformative approaches to respond to the impacts of climate change. This calls for a need to foster synergies between adaptation and mitigation efforts.

Opportunities to foster climate change adaptation are being missed as the share of expenditures for general services declines

While overall support to agriculture has increased, investments in general services (GSSE), including R&D, biosecurity services, infrastructure and other expenditures benefitting the sector overall, continue to represent a small and declining share of transfers towards the agricultural sector. In 2020-22, these investments amounted to USD 106 billion, or 12.5% of the total positive support, a share that had fluctuated between 15% and 17% since 2000 but has fallen significantly after 2018. Almost half of this is spent on investments in infrastructure, notably related to irrigation. While irrigation plays an important role to withstand production under arid conditions, greater consideration needs to be given to unintended consequences caused by such investments in the absence of adequate water management policies, such as increased GHG emissions or growing pressures on water availability and water tables.

Less than a quarter of the general services investments across the 54 countries are for agricultural knowledge and innovation systems. Research and development, as well as extension services and other forms of knowledge transfer, are known to be highly efficient investments with high payoffs, even if the returns may materialise only many years later. Nonetheless, public expenditures on innovation have declined relative to the sector’s size, from 0.9% of the value of agricultural production in 2000-02 to less than 0.6% in 2020-22, with countries missing a significant opportunity. Continued technical progress requires public investments in innovation complemented by private ones. At the same time, such investments should be better targeted towards avoiding environmental damage and lowering the use of natural resources, rather than just labour-saving technologies, as seen in many countries in recent years. Agricultural productivity needs to rapidly increase in an environmentally sustainable manner to meet stated global food security targets while reducing agricultural emissions and preserving natural resources.

Under a changing climate, investments in biosecurity may also play an increasingly important role. Expenditures on inspection and control systems, including those related to pests and diseases, correspond to 0.2% of the value of agricultural production, with little relative change over the past 20 years. These activities are particularly relevant in the context of risks related to invasive species that can harm domestic food systems and biodiversity, which can generate significant economic and environmental costs.

Transformative action for sustainable agriculture and food systems

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 committed “to support the transformation of agriculture and food systems towards more sustainability and resilience”.1 In line with the ministers’ declaration, the following actions for governments are identified for improving agriculture and food system’s resilience to successive shocks, including related to climate change.

• Phase out measures that hinder adjustments to production, such as price support and other policies targeting specific commodities that increase the rigidity of food systems by reducing farmers’ incentives to adjust their production programmes to changing conditions. These are the same policies, that previous editions of this report have found to be economically inefficient and potentially most environmentally harmful. To facilitate reform, short-term non-trade-distorting measures may be required. Periods of high food prices provide an additional impetus to reduce and eliminate price support policies with minimal adjustment costs to producers and consumers. Nonetheless, the persistently high levels of such support in some OECD countries and the increased levels in some emerging economies suggest that more concerted multilateral action may be required to facilitate such reforms.

• Prioritise government engagement in agriculture’s risk management on information, facilitation, and catastrophic risks. Governments should ensure that risk-related information is available to farmers and other market participants, that insurance markets function well, and that recovery-related support focuses on large-scale systemic or catastrophic risks that cannot be borne by farmers or risk markets.

• Invest in targeted interventions supporting climate-change adaptation and the sector’s transition to more sustainable and resilient agriculture and food systems. This should include significantly increasing investments in research, development and innovation to enhance on-farm resilience, such as through activities that can safeguard genetic and species diversity, encourage farmers to develop entrepreneurial skills and human capital, foster innovation on and promote the uptake of resilience-enhancing practices and technologies. Governments should also consider measures to increase agriculture’s transformative capacity, including the facilitation of structural adjustments. This could also relate to diversifying income sources for farmers, including off-farm employment. Although the context matters, governments should evaluate to what extent the programmes developed by countries contribute to strengthened resilience.

• Favour no-regret measures that support resilience in a wide range of circumstances. Given the unknown nature of future crises and stressors, governments should focus on policy opportunities that provide benefits and address underlying vulnerabilities under different conditions. Facilitating international trade in agricultural commodities and their inputs, R&D focused on improved management of natural resources and the provision of other general services such as biosecurity and key infrastructure, are important elements in this regard and should receive increased attention.

In addition, governments should foster sustainable productivity growth in agriculture and food systems to meet its triple challenge of providing adequate, affordable, safe and nutritious food for a growing global population; providing livelihoods all along the food value chain; and doing so while increasing the environmental sustainability of the sector. In addition to reforming policies and reorienting support as recommended above, governments should:

• Enhance the agricultural knowledge and innovation system and its focus on sustainable productivity growth. Public expenditures should target productivity growth that reduces the sector’s use of natural resources, its emissions of pollutants and their harmful effects. They should also target the adoption of innovations by both small and large producers through enhanced extension and farm advisory services, the designation of model farms, or other means. Public investments need to complement private ones, and public-private R&D projects can facilitate the adoption of innovative tools and practices. Reducing food losses and waste can further contribute to lowering economic and environmental pressures.

• Incentivise the supply of public goods. The agricultural sector faces an increasing demand for contributions towards improved environmental outcomes and public goods, such as biodiversity conservation, water quality, habitat restoration, or other ecosystem services. Governments should increasingly consider targeted and tailored payments to support such activities where regulations and market incentives are insufficient. This includes efforts towards reducing agricultural GHG emissions, including by carbon pricing or other market-based approaches and through complementing supply and demand side measures. Reorienting existing support that is distorting or environmentally harmful provides an opportunity for supporting public goods without requiring additional resources. Standards on the monitoring, measurement and reporting of such public goods, and digital technologies to measure and trace them, could facilitate their provision and valorisation. Countries may need to collaborate to avoid possible environmental leakages and other issues that may arise from asymmetries in policies across countries.