Keep cutting farm subsidy, says policy review

Governments must keep cutting back farm subsidies linked to production, according to a new report.

Coupling farm support with production distorts trade and money would be better spent on promoting efficiency and sustainability, the Organisation for Economic Co-operation and Development has said.

Farm subsidies in developed countries accounted for 18% of total agricultural income in 2013, slightly less than 12 months earlier and down 12% from 20 years ago.

But the report recommends stripping back support to the below 3% levels of Australia, Chile and New Zealand, where cash is targeted at emergency measures and high-end research.

Read also: Days of farm subsidy are numbered

The policy review’s other recommendations were:

  • Any remaining production quotas should be relaxed or abolished
  • Funds freed up by subsidy cuts should be spent on agricultural education, infrastructure and research
  • Governments should be “bolder” in prioritising the environment and sustainability within the industry
  • Any farm income insurance schemes or support payments should not crowd out market-based risk management tools.

OECD Secretary General Angel Gurria said levels of uncompetitive subsidies could creep back up if farmgate prices stayed low for a period of time.

“High prices and high incomes in the farm sector have created the right conditions for deeper reform of agricultural policies, and much more needs to be done beyond fine-tuning,” Mr Gurria said.

“This means that production and trade-distorting support could inch back up in some countries if agricultural prices were to fall.”

In 2013, farm support levels in the European Union were close to the OECD average of 18%, with Norway, Japan, Switzerland and Iceland paying far higher levels.

Under the new CAP, spending on coupled payments in European countries will be capped at 8%.

Scotland will use production-linked subsidies for a Scottish beef scheme, giving mainland farmers about £136 for each of their first 10 calves and £68 each for the rest.

The Scottish government will also introduced voluntary coupled support for some sheep farmers, limited to a quarter of their regular breeding ewe flock.

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