Australia and the World Past and Present

Agriculture is not the same all over the world. It varies from country to country. There are hardly any large economic powers that do not subsidise agriculture. Among those countries that do, there can be large differences in economic support.

Canada strongly subsidises the dairy industry.

Mexico props up the tomato industry

The OECD says that the global average of subsidisation is 12% (of gross farm receipts 2019).

Which countries give the most support on a percentage basis? That would be Norway, Iceland and Switzerland. They all give over 47%.

In terms of overall spend China, the EU and the US are the most prominent.

China is the biggest subsidiser of agriculture in the world. What is interesting is that one does not hear much criticism of Chinese agricultural policy in western democracies such as the US, the UK or Australia.

On the other hand it is quite common to hear criticism of the tariff protection and agricultural subsidisation of Western nations. Such criticism was prominent in the 1990s and 2000s as part of the criticism of Globilisation.

According to this point of view, many developed nations became developed precisely because they fostered nascent industries behind a high tariff wall while forcing trade on those nations with little or no protection. Many developing nations argue that they need to catch up and so a tiered system is justifiable – at least for a time.

Support for farmers within China in the 2020-2022 period averaged 14.4% of gross farm receipts.

China often makes payments to producers based on the area of land being farmed.

In recent years the payments to maize and soybean producers has increased in an effort to meed domestic demand.

In the period 2020-22 the price received by producers was 15% higher than world prices.

Support for agriculture as a percentage of GDP was 1.8% (2020-22).

There has been an increase in input costs within China in recent times.

Climate change has become a key focus. More attention is being payed to drought, floods and water management.

China joined the World Trade Organisation in 2001.

In the early 1990s, the average import tariff for agricultural imports to China was relatively high – 42%.

By the early 2000s it had significantly reduced to 12%.

At times the Chinese government has stockpiled certain agricultural products – for example soybeans and cotton.

There is quite a lot of talk about food security and green agriculture.

China has ratified the Paris Agreement of Climate Change. China wants its emission levels to be 65% of 2005 levels by 2030. It wants to be climate neutral by 2060 and has a renewable energy target of 25%.

China wants to reduce the degree to which fertilizers and pesticides are used in agriculture.

The government subsidises insurance fees for farmers.

The OECD describes China as a “upper-middle income economy”.

Agriculture provides 24.4% of the nation’s employment and contributes 7.6% to the country’s GDP.

The average farm size is relatively small by world standards – less than one hectare.

Since 2003 China has been a net agri-food importer. China produces a lot but with the largest population in the world it needs to import even more resources.

Some have suggested that the subsidsation of agriculture might not be driven solely by economic considerations. Alice Calder has noted that it may also be an attempt to head off political instability.

South Korea, Japan, Indonesia and the EU all provide their farmers with a higher rate of subsidisation than the global average (12% in 2019).

Japan subsides its farmers at 41.3% (of gross farm revenue). Support for Japanese farmers has been coming down over the long term but still remains high.

One could argue that high subsidation stifles innovation. That is likely the case. If a farmer is benefiting form the status quo then there is little incentive to change practices.

On the other hand, if we move to a world where there is no support for producers, they will be competing not just with the farmer next door or in the next province but with millions of farmers all across the world. This may lead to the endless chase for more farming land, farmers working longer hours, taking less holidays and laying off employees if their functions can be replaced by technology.

How does Australia fare? Australian farmers actually receive a very low rate of subsidation if you compare it to global figures. Support is estimated to be 4.3% (of gross farm receipts 2020-22).

Market price support ended in 2000.

Most support is based on input use.

There are concessional loans available for farmers as well as disaster relief payments.

Biosecurity is an important issue.

The Australian government has a target to decrease greenhouse gas emissions by 43% of 2005 levels by 2030. Emissions are above the OECD average.

Animal welfare is key focus of regulatory agencies as is the traceability of livestock through supply chains.

Climate change has become increasingly important. Australia is a very dry continent and therefore water management is crucial. There is a lot of focus on the Murray-Darling Basin. It is expected that due to climate change there will be an increase in rainfall variability.

Australia agriculture makes up 3.4% of the country’s GDP (2021) and 2.4% of jobs.

In 2021 Australia was the world’s second-largest sheep meat and wool producer. It was also 7th in beef and in the top ten for wheat.

Australia is a net exporter of agricultural goods with around 75% shipped overseas.

Total support from government is down from the 1980s. During this time there were 65 statutory marketing boards which attempted to maintain strong prices for farmers through border controls.

The average farm size in Australia is relatively high – 4,331 hectares in 2014/15 (according to the Australian Bureau of Statistics 2015-16 Agricultural Survey). The use of technology is widespread.

There is one country whose farmers receive next to no government subsidies. That country is New Zealand. In 1984 the New Zealand government stooped subsiding agriculture (which was around 30% at the time). The drop in the number of farms has been very low (1%) while output has increased 40%.

The largest growth in subsidies can be seen in large developing countries such as China, India and Turkey.

Developed countries will often point out that while they are being called on to reduce their own tariffs, developing countries want to maintain their subisidies at a higher rate or for a longer period of time. Developing countries argue that this important for global equality while developed countries counter that their own farmers will lose out.

The world is slowly moving towards tariff reductions across the world. The process it not without its opponents, critics and hurdles. But international organisations like the World Trade Organisation and agreements like the General Agreement of Tariffs and Trade (GATT) are strengthening and they are pushing nations towards operating under a standard system of rules.

Sources:

Agricultural Policy, Monitoring and Evaluation 2023 – Chapter 9 – China – OECD iLibrary

Agricultural Policy, Monitoring and Evaluation 2023 – Chapter 5 – Australia – OECD iLibrary

Agricultural Policy, Monitoring and Evaluation 2019 – (for all other countries discussed in the article)

‘Agricultural subsidies: Everyone’s doing it’, Alice Calder, 21 October 2020