JANUARY 2022 REPURPOSING AGRICULTURAL POLICIES AND SUPPORT Options to Transform Agriculture and Food Systems to Better Serve the Health of People, Economies, and the Planet i Madhur Gautam, David Laborde, Abdullah Mamun, Will Martin, Valeria Piñeiro, Rob Vos © The World Bank and IFPRI REPURPOSING AGRICULTURAL 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved POLICIES This work is a product of the staff of The World Bank and the International Food Policy Research Institute (IFPRI). The Food and Agriculture Organization of the United Nations (FAO) facilitated the funding for this study but does AND SUPPORT Options to Transform Agriculture and World Bank or of the governments they represent, or of IFPRI. The World Food Systems to Better Serve the Health Bank and IFPRI do not guarantee the accuracy of the data included in this of People, Economies, and the Planet work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory, or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank and IFPRI encourage dissemination of their knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution Please cite the work as follows: Gautam, M., Laborde, D., Mamun, A., Martin, Madhur Gautam1, David Laborde2, Abdullah Mamun2, W., Piñeiro, V. and Vos, R. 2022. Repurposing Agricultural Policies and Will Martin2, Valeria Piñeiro2, Rob Vos2 Support: Options to Transform Agriculture and Food Systems to Better and IFPRI.” 1 Agriculture and Food Global Practice, Sustainable Development 2 International Food Policy Research Institute All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street pubrights@ worldbank.org. Cover photo: © 2019 Tavarius/Shutterstock Report design: Spaeth Hill JANUARY 2022 ii R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T ACRONYMS AND FOREWORD ABBREVIATIONS Providing nutritious and affordable food for a growing global population while protecting the vital natural systems that sustain life is one of the AEZ Agroecological zone IFA International Fertilizer Association critical challenges of our times. Current agricultural practices have yielded ALU Agricultural production and land use IFPRI International Food Policy impressive productivity gains, but are increasingly associated with high Research Institute BCA Border carbon adjustment greenhouse gas emissions, biodiversity loss, and chronic disease, while IMF International Monetary Fund CAP Common agricultural policy IPCC Intergovernmental Panel on Climate Change (United Nations) How can agricultural support policies be repurposed to make the food CES Constant elasticity of substitution system deliver better outcomes? This was the broad question the World IO International Organizations CET Constant elasticity of transformation Consortium Bank and the International Food Policy Research Institute (IFPRI) sought to CFS Committee on World Food Security LES CGE Computable general equilibrium LUC on the promise of food systems for sustainable development. CO2eq 2 ) equivalent MAFAP Monitoring and Analyzing Food COP26 and Agriculture Policies (FAO) All solutions are not equal when it comes to rethinking agricultural public Parties of the UNFCCC (2021) MToE Million tons of energy use would increase substantially in the future if current policies are untouched. CoSAI Commission on Sustainable NDC Nationally determined contributions (UNFCCC) Simply rearranging or even removing current support would not bring about the changes needed for sustainability. Nor would applying CSA NRA Nominal rate of assistance environmental conditionality to the support provided while relying solely EC NRP Nominal rate of protection on currently available technologies: While it could help reduce emissions EMDE OECD economies for agricultural production. Both changes in incentives and investments in FAO Food and Agriculture Organization of PPP Purchasing power parity innovations that simultaneously pursue productivity enhancements and the United Nations R&D Research and Development greenhouse gas emission reductions are needed in order to deliver broad FAOSTAT Food and Agriculture Organization TFP Total factor productivity Corporate Statistical Database UNCAS UN Climate Action Summit FOLU Food and Land Use Coalition UNDESA United Nations Department of FSIN Food Security Information Network technologies for crops and livestock could reduce overall emissions from GDP Gross domestic product UNDP United Nations Development agriculture by more than 40 percent. Meanwhile, millions of hectares of GFR Gross farm receipts Programme land could be restored to natural habitats. The economic payoffs to this GHG Greenhouse gas UNEP type of repurposing would be large. Redirecting about $70 billion a year, Programme equivalent to one percent of global agricultural output, would yield a net GI Green innovation UNFCCC United Nations Framework GNI Gross national income Convention on Climate Change Gt Gigatons UNFSS United Nations Food Systems Summit would raise rural incomes, contributing to improved food security. It would HLPE substantially reduce the cost of healthy diets, contributing to better (of the CFS) WDI World Development Indicators nutritional outcomes. And it would accelerate poverty reduction. IDB WTO World Trade Organization Note: $ refers to US dollars. ii R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T iii Foreword At a time when farmers bear the brunt of worsening climate change impacts, volatile food prices, rising input costs, and shifting consumer ACKNOWLEDGMENTS demand, government support is much needed and could be much better targeted. The report uncovers that for every budgetary dollar spent under This study was undertaken by a joint World Bank and International Food Policy agricultural policies, governments must be mindful of farmers’ bottom lines Research Institute team comprised of Madhur Gautam, David Laborde, Abdullah Mamun, Will Martin, Valeria Piñeiro, and Rob Vos. Special thanks to Martien Van support for policy changes, incremental or otherwise, will be key to the Nieuwkoop(Global Director), Louise Scura (former Practice Manager for Global success of reform efforts. to a growing literature on how to repurpose current agricultural policies The Food and Agriculture Organization of the United Nations (FAO) gracefully are also grateful to FAO staff, Marco V. Sánchez and Valentina Pernechele, for helpful comments to an early draft of the study. The authors further gratefully acknowledge the valuable inputs and feedback received at various stages of this study from Martien van Nieuwkoop Johan Swinnen McGreevey, Flore Martinant de Preneuf, Robert Townsend, Michael Toman, Dina Global Director, Agriculture and Director General, IFPRI and Global Director Food Global Practice, World Bank for Systems Transformation, CGIAR drafts of this paper: an IFPRI policy seminar (April 21, 2020); the National Bureau of Support for Health, for Prosperity and for the Planet – Policy Realities” (July 28, 2021); the 49th Session of the Committee on World Food Security (CFS) side event on Farmers” (October 11, 2021); the Global Landscapes Forum (November 7, 2021); the The publication and editorial services for this report were provided by the Translation and Interpretation Unit in the Global Corporate Solutions Department (GCSTI) of the World Bank. iv R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T v Acknowledgments KEY MESSAGES • Current governmental support for agriculture provides incentives for unsustainable patterns of production and consumption, with agriculture and land-use change responsible for 22 percent of global greenhouse gas emissions (GHG). o Given a “business-as-usual” scenario of unchanged support, GHG emissions from agriculture would increase by 58 percent, and 56 million hectares would be converted to agricultural land between now and 2040. • Current support for agriculture delivers low value for money as a way of helping farmers; for every dollar of public support, the return to farmers is just 35 cents. • Simple reductions in or rearrangement of current support will not yield game-changing reductions in global emissions. • Policy conditionality tying support to the adoption of environment- friendly but lower-yielding farm practices could potentially reduce emissions, but would entail tradeoffs for people, nature, and economic prosperity with lower agricultural production, higher poverty, higher agricultural land use and an increase in the cost of healthy diets. • Concerted efforts to repurpose a part of current domestic support as incentives to develop and adopt green innovations that reduce both emissions and costs could potentially deliver substantial gains for the planet, the economy, and people. o Simulation results suggest that investments in innovations designed OVERVIEW to lower emissions and raise productivity by 30 percent could reduce emissions from agriculture and land use by more than 40 percent, returning 105 million hectares of agricultural land to natural habitats, while delivering substantial gains in poverty reduction, nutrition, and the overall economy. • There is a strong case for policymakers to scrutinize and rethink their current domestic policies. The biggest gains would accrue through a coordinated effort of all countries to reset their policies to address the global threat of climate change, and to better meet nutritional and social needs. Securing affordable access to a healthy, nutritious, and safe diet for the growing world population in the face of climate change and wide- spread resource degradation is a major global challenge. Demand for R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T vii Overview incomes are rising rapidly. Agricultural performance in meeting the chal FIGURE O.2: food production has substantially outpaced population growth. However, continuing to meet global food needs successfully and sustainably is become more volatile (Figure O.1). FIGURE O.1: Growth and Volatility Trends in Food Production Per Capita, 1980–2000 1.6 1.8 Standard deviation in annual growth, percant 1.4 1.6 1.2 Trend growth, percent 1 1.4 0.8 1.2 0.6 Source: 0.4 1 0.2 Building better food systems requires a fundamental change in incen- 0.8 tives. 0 path by keeping current policies in place, emissions from agricultural 1981-90 1982-91 1983-92 1984-93 1985-94 1986-95 1987-96 1988-97 1989-98 1990-99 1991-00 1992-01 1993-02 1994-03 1995-04 1996-05 1997-06 1998-07 1999-08 2000-09 2001-10 2002-11 2003-12 2004-13 2005-14 2006-15 2007-16 2008-17 2009-18 2010-19 -0.2 0.6 Growth (10 year trend growth rate, left axis) of new land would be converted to agriculture between 2020 and 2040. Volatility (10 year Std. Dev. of annual growth, right axis) Source: FAOSTAT Climate change is not a distant threat—it is already adversely affecting governments of the 79 countries for which data are available supported agriculture. agricultural production and food consumption with measures that gen slowed productivity growth by 21 percent globally, and by as much as 40 percent in parts of Africa and other tropical zones. More worryingly, as shown in Figure O.2, this adverse impact appears to be intensifying, push agricultural producers, of which 82 percent was provided through mea impacts will offset all productivity growth, and beyond which the economic and social consequences could be devastating. linked to outputs, inputs, or production factors like land area (referred to as domestic support in this study) as well as market price supports provided While agriculture is highly vulnerable to climate change, it is also a major through trade restrictions such as import tariffs and other border mea contributor to the problem. sures (referred to as trade barriers in this study). About 11 percent of the total support was provided to poor consumers, for instance through public of these, or about 22 percent of the total, are generated on farms, from food assistance or food distribution programs. Of the remainder, about 17 percent was for public goods and services like research and irrigation, better environmental outcomes. Governments have been providing these loss of biodiversity, the degradation of natural resources, and the adverse broad types and levels of support to agriculture and food systems for viii R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T ix Overview a long time. This public support has helped to raise productivity and lower 4. Repurposing: In this scenario, a portion of current domestic support the price of food, especially of basic staples such as cereals; but it has also would be repurposed for increased spending on green innovations; promoted the unsustainable patterns of production and unhealthy diets that that is, the development, diffusion, and adoption of new technologies characterize today’s food systems. that both reduce emissions and raise productivity. The remainder FIGURE O.3: to deliver as nondistorting transfers to producers and other stake (in billions of current dollars and percentage share) holders. This could be used to compensate them for potential losses due to this reform, and to spend on rural infrastructure and other essential public goods and services that are fostering agricultural and rural development. and Services, BOX O.1: METHODOLOGY Other Using the International Food Policy Research Institute’s (IFPRI’s) global general equilibrium model, MIRAGRODEP, this study analyzes Consumer the likely impacts of several different policy options on the planet Market Price Support Support, (that is, on GHG emissions and land use); the economy (national income); and people (poverty, food security, and the cost of a healthy diet). These scenarios assess the potential effects of Decoupled transfers removing, restructuring, attaching conditionality to, and/or repurposing current domestic producer support. Source: Authors, using data from AgIncentives International Organizations Consortium. Note: b=billion Our analysis assumes a phased implementation of reforms and Could the current support to producers be repurposed to deliver better focuses on longer-term outcomes rather than immediate impacts. outcomes? Given the scale and structure of the support to agricultural In all of the scenarios, reforms are assumed to be implemented producers globally, this study assesses several options for repurposing current agricultural policies and support to achieve better economic, environmental, social, nutritional, and climate outcomes. The scenarios analyzed are: allow the investment and consumption responses to changes in income resulting from the reforms to be fully incorporated when 0. Baseline: considering outcomes. change” option that assumes current policies and patterns of producer support will continue unchanged. 1. Removal: Two scenarios consider the removal of two distinct forms 0. Baseline. A “business-as-usual” (or zero) scenario with unchanged a. Remove the current domestic support provided to producers. policies projects a substantial increase in agricultural emissions by b. Remove both domestic support and trade barriers or market price supports. 2040. Figure O.4 shows the projections for key outcomes. From 2020 to 2040, in line with past trends, agricultural value added would increase 2. Restructuring: Two forms of restructuring domestic support that would by about 3 percent per year, and emissions from agricultural production rely on currently available technologies and practices are analyzed: a. Replace the current pattern of support, which targets certain agricultural is projected to increase by 1 percent, equivalent to drawing 56 million products, with a uniform rate of support for all agricultural products. hectares of new land into agriculture from 2020–2040. of agricultural land would increase losses in biodiversity and ecosystem 3. Conditionality: In this scenario, producer support would be conditional services; increase emissions as a result of forest conversion to farmland; and reduce carbon sequestration capacity by 7 percent. able technologies. x R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T xi Overview • This scenario also reveals that the vast public resources spent Agri Value Added ($Trillion) Poverty (PPP$1.90, %) Domestic support to producers costs around 14 percent of agri 7.36 cultural value added but yields an increase in real value added of 8.20 5.47 3.92 to farmers, its implied at only about 7.22 7.15 2020 2030 2040 2020 2030 2040 producers that are not linked to inputs or outputs) would almost Agric Land (Bill. ha) Net Agric. Emmissions, Gt triple the gains to farmers, while avoiding the distortions created by Agric Production LULUC current forms of support. 4.87 • Removing trade barriers as well as domestic support would 4.81 4.84 7.24 9.12 yield somewhat greater income gains but would limit the 5.76 reduction in emissions. Trade barriers in the form of import tariffs 2020 2030 2040 -2.29 -2.18 -2.13 2020 2030 2040 Their removal (Scenario 1b) would thus have partially offsetting Source: Authors’ baseline scenario projections. be larger if both trade barriers and domestic support were reduced 1. Removal: What is current agricultural support “buying”? This question global poverty would fall slightly. With a more muted decline in assume the removal of domestic support and of all producer support, global agricultural output as compared to removing only direct support, however, this more comprehensive reform would limit • A simple removal of domestic producer support would involve the reduction in global GHG emissions induced by the removal of important trade-offs. Removing domestic support (Scenario 1a) domestic support to about 39 megatons of CO2 would have small but favorable impacts on the climate and on of total agricultural emissions in the baseline. This muted impact nature by reducing agricultural GHG emissions by the equivalent of about 103 megatons of CO2 (CO2 prices, which would fall in protecting countries, thereby increasing agricultural emissions in the baseline, as well as reducing the global demand for food and offsetting some of the decline in global territorial footprint of agriculture, saving 27 million hectares, or production from the removal of domestic support. about 49 percent of the projected conversion of land to agricul ture. However, these environmental gains are far short of what is needed to appreciably curb agriculture’s contribution to climate changers for agriculture’s impact on climate change; but they require careful consideration of current and projected trade-offs. The options the one hand, removing distortionary domestic support would for maintaining but redirecting domestic support to agriculture considered that are conceptually similar but that need to be tailored to individual baseline projections for 2040. On the other hand, major political economy challenges would be likely to emerge as farm output and real farm income per worker would decline, reinforcing policy the removal of current supports. These scenarios assume an international makers’ concerns about food security and the welfare of farmers. consensus, under which all governments would repurpose support toward The current farm-support regimes were not designed to reduce common global objectives. poverty or to improve diets, but their abolition would likely increase food prices, contributing to more poverty (albeit marginally) and raising the cost of healthy diets. xii R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T xiii Overview 2. Restructuring. Maintaining support for agriculture at the current FIGURE O.5: Global Implications of Repurposing Domestic Support (Percentage Change Relative to Baseline Projections for 2040) levels but restructuring it either by moving to uniform rates of assis- tance for all products, or by favoring low-emission products would ECONOMIC FARM SECTOR yield surprisingly small economic, social, and environmental gains. (Real national income, % change 2040) (Agricultural production volume, % change 2040) Replacing the current highly variable system of agricultural support with a Removal of Dom. Support uniform rate (Scenario 2a) mimics a shift toward decoupled transfers and Removal of all support would remove the present bias toward certain products. However, moving Uniform subsidy Target CO2 (Scenario 2b) would have surprisingly little impact on emissions. Para Env. Conditionality CROPS LIVESTOCK Repurposing for GI actually increase global emissions by increasing demand for cropland and -3.2 -2.2 -1.2 -0.2 0.8 1.8 -20.0 -10.0 0.0 10.0 would be retired as livestock production fell. These outcomes suggest that SOCIAL DIETS while this scenario is appealing at face value, merely shifting subsidies (Poverty at PPP$1.90, % change 2040) (Healthy food prices, % change 2040) Removal of Dom. Support overall emission reduction. Removal of all support 3. Conditionality. Making support “conditional” on reducing emissions Uniform subsidy would be positive for planetary health but could entail trade-offs for Target CO2 people and economic prosperity. Promotion of production methods and Env. Conditionality practices that improve environmental outcomes but reduce the produc Repurposing for GI tivity of land (Scenario 3) could potentially deliver important reductions -1.3 -1.1 -0.9 -0.7 -0.5-0.3 -0.1 0.1 0.3 0.5 0.7 -20 -15 -10 -5 0 5 10 in GHG emissions; but it might also come with economic and social costs. CLIMATE NATURE Drawing on the literature on emission reductions and cost increases (Reduction in emissions from agriculture and (Agricultural land, % change 2040) land use, % change 2040) an illustrative simulation makes farm support conditional on production Removal of Dom. Support techniques that reduce emission intensities by 10 percent, while raising Removal of all support costs by the same amount. This would reduce global GHG emissions from Uniform subsidy agricultural production by 19 percent through the reduction in emissions Target CO2 per unit of output, and a decline in global output. But this gain would be Env. Conditionality Repurposing for GI land would need to be brought into agriculture. The net reduction in emis -40 -30 -20 -10 0 10 20 -2.5 -1.5 -0.5 0.5 1.5 would come at cost of a 0.8 percent decline in global income, and a drop Source: Authors, using model simulation results. Note: Brown bars indicate movement toward, and teal bars indicate movement away from achieving the related SDG(s). GI= Green Innovation. cost of a healthy diet would both increase. Decreased biodiversity would incur additional losses since an increase in the use of land for agriculture The repurposing option, which would result in the loss of forest habitat. would redirect a part of domestic support toward targeted investments in technologies that are both productivity-enhancing and emis- sions-reducing, appears to hold the potential to deliver “triple wins” for a healthy planet, economy, and people. The key point of departure in xiv R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T xv Overview that is, technologies and practices that would reduce emissions while • Productivity-driven growth reduces poverty and makes nutri- increasing productivity. Recognizing that achieving this is not without In this scenario, global cost, the focus of this scenario is on redirecting some of the domestic poverty would fall by 1 percent, while the cost of a healthy support currently provided to agriculture toward more public spending diet would drop by a substantial 18 percent. on research and development (R&D), and incentives for the development • - over the long term—between now and 2040. The repurposing of recent innovations to raise productivity and reduce agricultural emissions, current agricultural support could facilitate farm labor moving into this illustrative scenario assumes a 30 percent increase in production other parts of the economy, because some of this money could and a 30 percent reduction in emissions per unit of output. The literature be spent instead on human capital and skills development, as well on past agricultural productivity growth suggests that the cost of raising agricultural productivity by 30 percent on a sustainable basis would be formation, farm labor could become more productive both within roughly equivalent to one percent of the value of farm output. This sce agriculture and in nonfarm work if governments invested more in the human capital of rural people. nario considers repurposing the equivalent of one percent of the value of farm output from the current domestic support for agriculture to invest in Notwithstanding the substantial potential gains for people, the planet, R&D, under the assumption that with reoriented R&D priorities, this level of and the economy that could result from the repurposing options research intensity would also apply to the generation of green innovations. discussed in this study, current agricultural support measures need to be carefully scrutinized in various country contexts. A key insight from and would be potentially available to deliver as nondistorting transfers to this study is that current agricultural support is a very blunt instrument for producers and other stakeholders to compensate them for any losses they security and nutrition. There appears to be great potential for achieving rural infrastructure, and other essential public goods and services that major gains on these fronts by repurposing support toward public invest are fostering agricultural and rural development. The importance of green the results of the repurposing scenario. policies are likely to have strongly positive international spillovers. Innova tions that reduce environmental impacts and raise productivity are likely • to either be rapidly adapted in other countries, or to provide a basis for developing technologies for other agroecological environments. • Nevertheless, even the best-designed policy reforms will face political Between 2020 and 2040, hurdles. Agricultural support policies are the prerogative of national overall emissions from agriculture would fall by more than 40 governments. Overcoming national resistance to agricultural policy reform percent, or nearly 2.8 Gt CO2eq—avoiding nearly 80 percent of from affected stakeholders will be a huge challenge. National farm and agricultural policies have a long history in most countries and have devel production factors (for a given level of demand), including land. the major private and societal gains to be achieved, and multistakeholder About 2.2 percent less agricultural land would be needed in this options and to devise acceptable strategies should help to earn political for restoration to natural habitats, with potentially substantial For reforms to foster sustainable global development, effective policy agriculture between 2020 and 2040 under the baseline scenario coordination and technological innovations that are attractive to but would also release another 48 million hectares currently being both individual producers and governments are needed. At present, used for agriculture that could be restored as natural habitats. xvi R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T xvii Overview agricultural support is distributed unevenly across nations. Poorer nations their national agricultural research systems generally have weaker resource other food producers face bigger obstacles in adapting those practices. contribute most effectively to solving global challenges. International coordination is vitally important to achieve the needed reductions in global emissions from agriculture. Climate change and environmental sustainability are global challenges that transcend borders, and national policies have strong international spillover effects. Policy ultimately all countries need to act together to effectively address the global threat of climate change to our food systems. xviii R E P U R P O S I N G AG R I C U LT U R A L P O L I C I E S A N D S U P P O R T xix Overview