By Javier Blas in London
The rise in agricultural commodities prices has led to the lowest support by rich countries to their farmers in nearly three decades, according to new figures released by the Organisation for Economic Co-operation and Development.
The share of farmers? income derived from subsidies fell in 2010 to 8 per cent in OECD countries, down from 22 per cent in 2009. ?This is the lowest level observed since the mid-1980s and confirms a long-term declining trend,? the OECD said in its annual agricultural policy monitoring and evaluation 2011 report.
But the OECD, which advised rich countries on economic policy and has argued for a long time that subsidies should be reduced, warned that the drop was due to rising agricultural commodities prices, rather than a re-orientation of agricultural policy.
?The increased burden on public finances in OECD countries in the wake of the financial and economic crisis has not led to a significant reduction or increase in budgetary expenditures on the agriculture sector,? it said, adding: ?Where budget payments have been reduced it typically resulted from countercyclical payments declining as a consequence of high world prices or from shrinking disaster payments.?
The OECD said its 34 members spent $227bn last year subsidising their farmers, down nearly 6 per cent from 2009 and 13 per cent from 2008.
China, which is weathering high food inflation, boosted subsidies last year to a record $147bn, up a hefty 40 per cent from 2010.
The sharp increase pushed the share of Chinese farm income drawn from subsidies to 17 per cent, nearing the OECD average of 18 per cent. ?Direct payments to grain farmers in China have been consistently increasing since their introduction in 2004,? the OECD said.
The Paris-based organisation urged governments to use the current period of high agricultural prices to reform their agricultural policies.
?High prices today effectively remunerate producers and undermine the stated rationale for traditional price and output support policies,? it said.
Nonetheless, it acknowledged that high prices did not translate necessarily into higher farm incomes in all sectors due to a sharp increase in input costs, including more expensive fuel, fertiliser and seeds.
Agricultural subsidies are a contentious political issue in Europe and the US, where powerful regional pressure groups have worked hard over the years to maintain them. The subsidies are also a key obstacle in the moribund Doha trade round.
The OECD said that subsidies accounted for about 9 per cent of US farmers? income, while it was at 22 per cent in the European Union.
New Zealand and Australia, at 1 and 3 per cent respectively, are the two OECD countries where support is lower. Norway remains the highest, with 60 per cent of farmers? income derived from subsidies.
Agricultural policy has moved upwards in the global agenda after the 2007-08 food crisis, the first in 30 years, and the spike of 2010-11.
The rise in agricultural commodities prices is due to a combination of factors, including higher consumption in emerging countries, the use of crops to produce biofuels, a string of crop failures due to adverse weather and policy reactions such as export bans and hoarding.
? The Financial Times Limited 2011