Agribusiness

Do Farmers really need the Subsidies?

24 Jun 2019, by Informa Connect Insights

Smallholder farmers produce over 70% of the world’s food supply, but they remain as one of the most impoverished groups of people in this planet. A key challenge faced by these farmers has always been their limited access to markets, whether it’s in terms of accessing agricultural inputs or getting their produce to the markets directly without having to go through a third party and be at the mercy of exorbitant fees charged by middlemen.

Yet, the heart of many of these policies posited to support these farmers is subsidies. It’s been shown that Asia spends more than the rest combined on agricultural subsidies[1]. Contrary to intentions of helping small-time farmers to be profitable, the empirical studies tell us that these payouts often benefit large, industrial-scale agribusinesses than the latter[2].

Also, subsidies distort market prices and causes inflation in the market. It hurts consumers by artificially hiking up the prices of goods, reduces competition among farmers and deprives farmers of their rights to be true entrepreneurs in the free market. So often, policies like these become politicized and difficult to retract when farmers get stuck in the vicious cycle of subsidy support.

That said, governments are increasingly looking towards innovative policies to empower smallholder farmers in markets. For instance, the Indian Government is exploring the option of channeling current funds allotted for subsidies into direct cash transfers targeted at small farmers[3]. This empowers beneficiaries to make their own choices, in contrast to having farmers choose from options already predefined by many of the subsidy schemes.

As the IT nation of the world, India is also harvesting technology to bridge the gap between the formal and informal economy— where most of the smallholder, rural farmers are situated in. The Indian Government took the lead in piloting the electronic National Agricultural Markets (eNAM) in 2016. The impetus of the project primarily stems from farmers’ lack of access to credit facilities and poor market information, which made them extremely vulnerable to exploitation by lenders who would purchase their produce at arbitrary prices and keep them in debt[4].

Henceforth, eNAM was built to eliminate the presence of the middlemen and close the gap, by integrating agriculture markets across the country onto a single electronic platform so these farmers trade directly with the buyers. Having a unified market also brings about transparency of prices between the parties involved in the transaction.

On the positive note, OECD reports that domestic support policies in the agriculture sector are steadily shifting its focus away from production – where subsidies encourage overproduction which can cause environmental degradation from the overuse of chemical fertilizers, towards the sustainability of social/economic and environmental outcomes[5]. Though not a recent example, I would like to draw your attention to New Zealand. While agriculture constitutes the largest sector in NZ’s economy, it remains as one of the countries that provides the least in terms of government assistance for agriculture.

The phasing out of subsidies intended for pastoral agricultural development from 1987 has brought about environmental benefits and more efficient land use in NZ; thereby, raising the incentive for farmers to adopt agroecological practices to sustain the quality and fertility of their soils:

“… there is now a growing appreciation that sustainable land management is enhanced through diversification. Moreover, there is also a better understanding of the complementary nature of diversified land use to mitigate soil erosion, enhance general amenity values as well as producing a valuable crop.”[6]

NZ has been a strong advocate for voluntary and community-based approaches, which are seen to be more effective in the long-term. This means for the Government to work closely with the private sector to resolve gaps in the market, for example: asymmetric information between buyers and sellers, poor communication and transportation infrastructure to conduct trade and transactions, and the lack of land tenure security among farmers.

Policies like the aforementioned eNAM can help to make markets work for the poor by improving the choice infrastructure for farmers to participate in the market, instead of underestimating and undermining their ability to optimize their capital more efficiently.


Want to learn more about the various financial models used to support smallholder farmers, and their sustainability?

The Sustainable Rice Platform (SRP) is a multi-stakeholder partnership to promote resource efficiency and sustainability both on-farm and throughout the rice value chain. SRP was co-convened by the UN Environment and the International Rice Research Institute in December 2011, and works in collaboration with partners in the public and private sectors as well as the NGO community.

Each year, the SRP brings together its members and dialogue partners to discuss collaborative approaches and innovative solutions to critical sustainability challenges facing the rice sector. Themed “Business Unusual” in 2019, the 2nd Global Sustainable Rice Conference and Exhibition is happening from 1-2 October 2019 at the United Nations Conference Centre at Bangkok, Thailand.

[1] http://www.worldwatch.org/agricultural-subsidies-remain-staple-industrial-world-1

[2] https://www.mintpressnews.com/global-agricultural-subsidies-near-500b-favoring-large-scale-producers/187275/

[3] http://www.newindianexpress.com/nation/2019/jan/27/coming-up-direct-cash-transfer-to-small-farmers-1930503.html

[4] https://www.entrepreneur.com/article/274085

[5] http://www.oecd.org/agriculture/topics/agricultural-policy-monitoring-and-evaluation/

[6] https://www.tandfonline.com/doi/full/10.1080/15693430601108086

 

Author: 

Thian Si Ying
Conference Producer, IBC Asia
www.linkedin.com/in/siyingt

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