Need to fix the concept of food subsidies to tackle world hunger crisis

If you want an image of subsidized food in the world, you might think of Egypt, where the price of flatbread is fixed and more than half the population lives on loaves costing just 0.05 Egyptian pounds (0.25 cents) thanks to heavy government support.
 

Alms for the needy are one of the oldest forms of charity. The tradition persists to this day, in the form of food stamps in the US, food banks in the UK, free school meals in Japan, direct subsidy programs like Egypt’s, and India’s price controls on farm produce. On top of that are exemptions from sales taxes for essential ingredients in many countries. With nearly 800 million people — about a 10th of the world’s population — unable to feed themselves adequately last year, you might expect this form of welfare to be growing in size and significance.

In fact, it’s close to the opposite. Subsidizing food is largely not an activity that involves the world’s poorest people who are most at risk of hunger, but its richest and most amply-fed. The spending that does go out overwhelmingly goes to farmers rather than the hungry — and while much of that helps to increase supply of edible goods, hundreds of billions of dollars are doing the opposite, reducing the amount of nutrition available to feed the world.

A recent report by the United Nations Food and Agriculture Organization breaks it down. While subsidies direct to consumers — especially if targeted at those most in need — are one of the most effective ways of tackling hunger, they’re a small part of total global support at just $72 billion out of $630 billion dedicated to the food and farming sector worldwide. What’s more, they’re skewed toward people in high-income countries who are least at risk of going short. In the richest nations, 4.6 per cent of the value of agricultural output comprises consumer subsidies. In the poorest ones, the figure is 0.6 per cent.

Far more important is what’s given to farmers. Some $92 billion goes to subsidizing inputs such as seed and fertilizer. A further $152 billion is spent on more broad-based support calculated on the acreage of farms, general output levels or environmental factors. Again, this money is largely going to rich countries, which provide producers with incentives equivalent to 24 per cent of output, falling to 16 per cent in upper-middle income countries such as China and Brazil. In less affluent nations, export bans, tariffs and other market interventions intended to reduce costs to local consumers often have the opposite effect, acting as a tax on output and discouraging farmers from growing sufficient produce. Those measures increase the cost of production by 4 per cent in lower-middle income countries such as India, rising to 9 per cent in low income countries like those in sub-Saharan Africa.

Unpicking this mess will be challenging. As anyone who has watched the politics of the US Farm Bills and the EU Common Agricultural Policy knows, once support for agriculture is established it can be hard to dismantle. Changes to such a heavily-subsidized sector inevitably involve wrenching losses of income in rural areas, which are often over-represented in legislatures. Path dependency is hard to break.

In many developing countries, it’s not even clear that cheaper food is always the main objective. When the poorest people in your country are farm workers, any drive to reduce the cost of nutrition risks lowering incomes at the bottom of the heap. The political risks of hurting the rural lower-middle class are even greater, given their propensity for political action. Indian Prime Minister Narendra Modi’s attempt to unpick his country’s mandi system — whereby the government would buy produce at fixed prices through its own marketing yards — resulted in more than a year of protests before it was abandoned. Farmers feared that the benefits of a free market in food would accrue mostly to traders, and preferred to stick with the status quo.

The world is facing multiple challenges in feeding itself as its population grows toward 11.2 billion in 2100 and climate change degrades and reduces the area available to harvest. Alongside the rising burden of hunger is a tide of obesity that’s stalking poor countries. That’s due in part to the fact that calories from fats and sugar are cheaper to produce than those from cereals or healthy vegetables, a situation that itself is related to the way food subsidies favor some crops over others.

Something has to change. If governments facing fiscal strain from the aftermath of the Covid-19 pandemic want to do something about the food crisis that’s come in its wake, they could do worse than look at the way their own spending is exacerbating the problem.