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date: 23 October 2017

Agricultural Subsidies and the Environment

Summary and Keywords

Worldwide, governments subsidize agriculture at the rate of approximately 1 billion dollars per day. This figure rises to about twice that when export and biofuels production subsidies and state financing for dams and river basin engineering are included. These policies guide land use in numerous ways, including growers’ choices of crop and buyers’ demand for commodities. The three types of state subsidies that shape land use and the environment are land settlement programs, price and income supports, and energy and emissions initiatives. Together these subsidies have created perennial surpluses in global stores of cereal grains, cotton, and dairy, with production increases outstripping population growth. Subsidies to land settlement, to crop prices, and to processing and refining of cereals and fiber, therefore, can be shown to have independent and largely deleterious effect on soil fertility, fresh water supplies, biodiversity, and atmospheric carbon.

Keywords: agricultural policy, land use, soil loss, climate change, biofuels, subsidies

Introduction

Governments around the world for centuries have confronted unrest alternately from farmers, food merchants, industrialists, financiers, urban workers, and international traders over whether and how states should subsidize agricultural production. Gaps in the supply of food, fiber, biofuels, and timber may at given times threaten public order and the stability of national economies, prompting governments to support high domestic crop and livestock production. Perennial surpluses that result from such supports, however, often create low prices. Subsidies originally designed to support urban working classes when food prices outstrip wages then often stay in place to keep farm enterprises afloat when food becomes too cheap for farmers to break even. With persistence of low prices and surpluses, powerful agricultural lobbies often emerge to protect subsidies and other government programs are installed to protect crops or livestock production, thereby augmenting surpluses. The problem of low prices often is compounded by international exchange: producers may suffer loss of market when agricultural goods arrive from abroad as aid or dumped surplus. Consequently, nearly all states with the capacity to do so have played a hand in directing land use and agriculture. This policy has ranged from net confiscations of growers through taxation or land seizure to net transfers to growers through land grants, income supports, and below-market price inputs, credit, and financial services.

State policies in agriculture, which have included cash transfers to agriculture, land colonization programs, high dams and irrigation schemes, and government procurement programs for biofuels have together spurred a rapid increase in the world’s total production of food and fiber. In the 20th and 21st centuries, three principal drivers of growth have been settlement of new lands, an eight-fold rise in application of nitrate fertilizer worldwide, and adoption of yield-intensifying machine, chemical, and seed technologies (FAO; UNEP, 2011). Despite predictions by biologists such as Paul Ehrlich in the mid-20th century that agricultural production would not keep pace with population growth by 1980 (Ehrlich, 1968), the world’s farms actually outpaced population increase from 1950 to 1990. Much as was true of fossil fuels during the same period, the greatest challenge to profitability for producers and for the governments who relied on these industries for tax revenue was excess production, not scarcity (Mitchell, 2013). As demonstrated in Figure 1, the mid-20th century was a time of falling real prices for food grains worldwide.

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Figure 1: World price index in food and grains, 1960–1990

(Source: World Bank)

As illustrated in Figure 2, a 20% increase in per capita food production per year occurred from 1960, peaking around 1990 and then declining about 2% in the following two decades.

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Figure 2: Food availability, grains, 1960–2010 (FAOSTAT)

According to intergovernmental organizations which attempt to regulate government payments to agriculture, including the World Trade Organization and the Organization for Economic Cooperation and Development (OECD), governments around the world subsidize agriculture at a rate of approximately one billion dollars per day (Peterson, 2009). Unofficially, the number may be closer to two billion dollars per day if the sum includes government spending on biofuels, high dams and irrigation systems, and infrastructure such as canals, roads, and deepwater port enlargements meant to facilitate the export of agricultural commodities including grain, soy, and palm oil.

Agricultural and environmental policies are generally formulated separately by governments. Nonetheless, state spending on agricultural production—whether in the direction of increasing production and land clearing, or reforesting eroded lands and river banks—impacts climate, soil fertility, air quality, water supply and ecosystems more than regulatory controls placed on energy generation, and industry pollution discharges. Government policies on food production, warehousing and transport, trade, and land tenure affect growers’ choices of crop and buyers’ demand for commodities. The environmental costs of pro-production subsidies include accelerated water and soil impacts from grain and fiber commodity production, water and air impacts from rising use of concentrated animal feeding operations for processing of livestock, and a sharp rise in emissions of greenhouse gases, including carbon dioxide, methane, and nitrous oxide (Steinfeld et al., 2006).

An Ethos of Free Markets?

Starting around 1970, observers of global food and fiber markets called attention to growing year-to-year surpluses in global supplies of grains, dairy products, and meat, much of which were dumped or disposed of. Blaming price supports in the European Common Agricultural Policy (CAP) and the U.S. Farm Bill for mounting waste in global agricultural production, critics called for radical retrenchment of industrialized world governments from agriculture sectors. They pointed out that transfers to agriculture that produced large surpluses actually undermined the redistributive and safety net goals of agricultural support programs. Programs such as the Agriculture Adjustment Act and income support programs under the CAP were created during the Depression and during European reconstruction after World War II as a means of stabilizing farm income and providing ever-normal granaries for public food supplies. However, with rising yields and inelastic demand for food and fiber commodities, prices fell over time and pressed farmers worldwide to defend their incomes by intensifying production or expanding acreage of crops in production.

The developing world ultimately answered the challenge of perennial commodity surpluses with their own subsidies. Starting in the late 1990s, government price supports surged in Asia, primarily in China and Indonesia. Governments also increased spending on high dams, water transfer, and irrigation projects throughout the Himalayan watershed (Pomeranz, 2009), which assisted rapid increases in production of crops such as cotton, coffee, and animal fodder for dairy and meat consumption. In Brazil, Malaysia, and Indonesia, new commodity transport infrastructure and favorable land tax policies for plantation agriculture contributed to a twenty-fold increase in land area devoted to oil palm (Potts et al., 2014, p. 235) and an eight-fold increase in land area devoted to soybeans (Brown, 2012, p. 96) since 1970. Together, these two oil crops account for over 40 million hectares of land converted to plantation from wild forests. All told, agriculture uses 70% of the world’s freshwater and 40% of ice-free land, and accounts for 30% of world energy use (Foley et al., 2005; Ramankutty, Foley, & Olejniczak, 2002; United Nations World Water Assessment Programme, 2003)

Over time, subsidies to agriculture have become difficult to untangle from long-term cultural and demographic changes. Rapid increases in commodity production, increasingly reliable sources of energy supporting transport and what is often referred to as the “cold chain,” or an uninterrupted series of storage and distribution activities that maintain a given temperature range, permit large-scale buyers to produce dairy, meat, and processed and packaged foods at reduced cost with fewer risks of wastage and food loss. The durability and ease of moving cheaply made frozen, packaged, and dehydrated food products, along with rapid urbanization worldwide, has spurred broad shifts in what people eat and what retail markets demand (Twilley, 2014).

While economic liberals have exhorted governments to withdraw supports to agriculture so as to reduce waste and undue costs to the citizenry, few states have done so. Entrenched political lobbies often have much to do with states’ decisions, as do imperfect markets (farmers often face problems of monopsony rents when there are many sellers but only single buyers of commodities in most local settings). Moral dictates also matter. In fact, subsidizing agriculture has been a feature of statecraft since antiquity. The primacy of food and of the human need for sustenance has made agriculture unlike any other domain of power. Access to food is a principle staked in notions of natural and divine law in Western legal traditions, and in notions of public virtue and noble obligation in Taoist and Confucian traditions. Food scarcities and price spikes have historically placed rulers, even despots, in political jeopardy. Drawing from the principle of natural law, the philosopher Thomas Hobbes implicitly invoked states’ obligation to ensure food security when he wrote that subjects owed obedience to the sovereign up to and until the state would deprive them of life:

The right of nature, which writers commonly call jus naturale, is the liberty each man hath, to use his own power, as he will himself, for the preservation of his own nature; that is to say, of his own life; and consequently, of doing any thing, which in his own judgment, and reason, he shall conceive to be the aptest means thereunto.

In China, imperial scholars serving the governing classes directed authorities to regulate agriculture and food warehousing down to household levels. The 18th-century emperor’s governing manual Kangjilu, or “Book on Saving and Supporting [the people],” indicated that leaders were required to see to the construction of irrigation systems, the planting of mulberry trees for each family, the maintenance of local granaries with protection from thieves and hoarders in times of scarcity, the opening of public kitchens in times of hunger, compelling of the rich to donate, forgiveness of taxes of the poor, employment of the displaced, and lending of seeds and draft animals to the displaced after periods of loss (Theobold, 2012).

Subsidies and Political Power

States clearly have overriding interests in keeping granaries at normal levels and stabilizing the price of food. However, the production of large surpluses and subsequent state policies that provide relief from low commodity prices via income supports, land fallowing, state procurements for food aid or for the conversion of grain into meat or biofuel, or simple producer income supports points to the power of subsidies to create political interest groups. Government intervention in agriculture and food systems often creates powerful lobbies and secondary industries which in turn organize in defense of subsidies. In other cases, longstanding class or colonial privileges generate state policies that reinforce existing social hierarchies.

An often-studied illustration of the power of producer lobbies is the case of the termination of the Corn Laws in England. In Europe through the mid-19th century, so entrenched were patterns of mercantilist protectionism and aristocratic privilege that the removal of tariffs on grain in England in 1846 has been characterized as a curious case of political “government suicide”(Aydelotte, 1967; Luzstig, 1995). In that case, rising bourgeois industrialists with interests in cheaper food began pressuring the British government for elimination of tariffs on grain and were countered by landed interests in Britain and colonized Ireland whose fortunes were beginning to decline relative to the managers of industry.

It was, as Schonhardt-Bailey (2006) argued, a pivotal moment in interests, ideas, and institutions in which groups that had previously been at odds allied on an issue that cut across older political divisions. Lobbying for the abolition of the Corn Laws that protected British farmers from less expensive grain produced abroad, Manchester merchant and British Parliamentarian Richard Cobden declared in a speech in 1844: “We want free trade in corn, because we think it just.” He denounced tariffs as the engine of monopoly and despotism that “[bound] some men together by depressing and injuring their fellow-citizens” (Cobden, 1908). Cobden was a champion of wealthy industrialists. After some years of work on the issue, he managed to enjoin his previous foe, Conservative Prime Minister Sir Robert Peel, to repeal the tariffs as a means of relieving the suffering of Irish famine victims who were little able to pay high prices for grain. Peel in turn was no far-reaching champion of the Irish poor, but he nonetheless feared the insurgent possibilities of famine-starved subjects and miserable working classes. On the same grounds, Peel also had been the architect of landmark police and prison reforms, of labor law reforms that established limits on factory labor, and ofa ban on child and female labor in the country’s mines. Abandoning his party’s stance on protectionism in an effort to relieve famine in Ireland, Peel assembled a coalition of Whigs and Liberals to push through a repeal of the Corn Laws. In so doing, the Prime Minister lowered the price of food at market but raised the political price of attacking vested land interests. Peel resigned under pressure, and his government collapsed two days later; he would never hold office again.

More than a century and a half later, in 2008, strange bedfellows were firmly allied once again on the same set of questions as negotiations stalled definitively during the Doha Round of the World Trade Organization. Echoing Cobden in an opinion piece written for the pro-business Bloomberg Review, Kamal Nath, a veteran politician and ally of powerful interests in the Indian business and governing class, scolded Western countries for their use of tariffs and special supports for their own farmers. “Developed countries in the West have systematically and egregiously distorted the global production and trade of agricultural commodities through an elaborate range of domestic and export subsidies,” he wrote in an editorial in Bloomberg Press (Nath, 2008. In a parallel piece, Eric Holt-Gimenez, a leading advocate of global food access for the poor and director of the left-leaning Food First Institute in Oakland, converged on Nath’s position, maintaining that “[t]he reasons so many people have limited access to food are anything but ‘natural.’ On the contrary, decades of skewed agricultural policies, inequitable trade, and unsustainable development have thrown the world’s food systems into a volatile boom-and-bust cycle and widened the gap between affluence and poverty” (Holt-Gimenez, 2008, p. 1). Nonetheless, these left–right alliances opposing state subsidies remain to date on the losing side of history. State tribute continues to flow amply to agriculture and its associated industries.

Three Subsidy Types: State Land Grants; Price and Income Supports; Biofuel Energy

Subsidies take many forms, including but not limited to crop price supports, input supports, public-sector research and development, tariffs, land settlement policy, land reform, income supports, procurements, preferential tax schedules, and food aid. Their impacts vary, but it may be argued that they all have independent impacts by prompting use of soil, water, air, and atmosphere where market demand alone would not lead to the same outcome. By way of illustration, the following section describes three types of state subsidies that have impacted land use heavily, in many cases with long-term shifts in baseline hydrology, soil composition, forest cover, plant and animal communities, and quite possibly precipitation (Sheil & Murdiyarso, 2009).

Land Settlement Programs (Colonial and Neocolonial)

An issue lost in intergovernmental debates over cash price supports is the fact that the heaviest imprint of the state on agriculture and the environment is the licensing of land use itself. Agriculture’s most profound environmental imprint occurs at inception. Where state policies effect a large-scale resettlement of population and the conversion of wild lands to agriculture and grazing, profound and often irreversible environmental impacts occur.

In a masterful history of tillage from antiquity to the present, David Montgomery argues that through animal and crop agriculture humankind is quickly “skinning the planet.” Erosion has accelerated greatly in the recent epoch of modern mechanized agriculture. However, humankind’s perilous interaction with the Earth’s paper-thin organic surface spans millennia. “Many ancient civilizations indirectly mined soil to fuel their growth as agricultural practices accelerated soil erosion well beyond the pace of soil production,” he writes (Montgomery, 2007, p. 2). In a parallel study of the history of human civilization and forests, Michael Williams assembles data that indicate that by 5500 bce, crop agriculture and stock grazing had joined fire as a driver of long-term ecosystem change through large-scale deforestation (Williams, 2010). Using FAO estimates, Williams estimates that approximately one-half of all forest clearing—in human history—about 1.8 billion hectares—occurred after 1950 (Food and Agriculture Organization, 2012). By the beginning of the current century, soil scientists estimate that about one-third of global lands were undergoing desertification, largely from tillage and grazing; the same authors estimated annual global soil loss at 75 billion tons (Eswaran, Lal, & Reich, 2001).

Today, the impact of agriculture and land conversion on global climate change matches electricity and heat generation as the largest contributor of total greenhouse gas emissions by sector. In 2014, the Intergovernmental Panel on Climate Change attributed one quarter of all greenhouse gas emissions to agriculture, forestry, and other land use (AFULO; Intergovernmental Panel on Climate Change, 2014, p. 816), Using a distinct methodology that accounts for additional emissions from the burning of forests and peat soils, researchers at the World Watch Institute estimate that agriculture and land-use conversion account for 31% of anthropogenic greenhouse gas emissions. Notably, of the 15 gigatons per year (CO2 equivalent) of greenhouse gas emissions they estimate each year, some 8.5 gigatons are attributable to land clearing and associated deforestation (Scherr & Sthapit, 2009, p. 9).

Historically, large-scale land conversion from forest to intensive agriculture unfolded gradually and without state design in some cases. A frequently cited example is the expansion and collapse of agriculture in pre-dynastic China in the period between 7800 and 4000 bce in the once-fertile Western Loess Plateau spanning portions of the Wei River and Yellow River basins (An, Tang, Barton, & Chen, 2005). In other cases, expansion of agriculture with attendant environmental impact on soil fertility and flood patterns occurred rapidly and as a function of state actions that can be understood as subsidy.1 Far-flung states in antiquity, from Assyria in the Levant to Tiwanaku in the Andean highlands, used legal, public finance, and military resources to colonize uncultivated lands and settle or resettle populations.

As ancient precursor to European colonization in the early-modern period, Rome had a history of subsidies through latifundia, or elite land grants. Roberts (2007) argues that subsidies in the form of imperial land grants were inseparable from maintenance of the armies that subdued populations in the hinterlands of the Roman Empire. The Roman state extended agricultural settlements exponentially in the second and first centuries bce, in the process provisioning large and longstanding military garrisons with supplies of corn, wine, wool, and leather. Subsidies were then reinforced by new patterns of consumption: foreign Gallic and Celtic aristocracies under Roman rule adopted wine‐drinking as a mark of status. The city of Rome, meanwhile, swelled as the capital of an empire and the center for conspicuous consumption and display by its ever richer leaders. With sales of luxury goods booming and state salaries supporting the armies capturing slave labor, Roman elites expanded their landholdings and intensified production in the Mediterranean. This period was one of rapid decline in soil fertility (Brown & Walsh, 2017; Montgomery, 2007).

The early modern period from the 1500s to 1900 marked a period during which state subsidies in the form of land grants arguably created the first rapid transformation experienced at planetary levels with the transatlantic exchange of cultivars, domesticated animals, mined nitrogen (guano), and biological plagues. European colonization after 1500 created what Alfred Crosby famously deemed “Neo-Europes” in North and South America, Australia, and New Zealand. In the Western Hemisphere, Iberian conquerors borrowed forms of statecraft and elite land subsidy from earlier Roman latifundia (Crosby, 1986). The encomienda, or grants of labor by the Spanish crown, were replaced by heritable hacienda land grants. Crosby’s thesis deals with the intersection of state intentionality—territorial conquest—with biological happenstance: European settlement endured, he argues, because indigenous populations and local ecosystems collapsed under the ravages of European livestock, diseases, and herbaceous weeds.

Elinor Melville’s classic account of landscape degradation in highland central Mexico in what become known as the Valle de Mezquital usefully expands our understanding of the pace and extent of the environmental impacts of European colonial land grants in the New World. In the early 16th century, the Valle was the site of intensive irrigation agriculture by the Otomí Indians, with such crops as maize, chiles, maguey, nopal, squash, and beans. The soils were good, and vegetative cover on the hills was rich enough to catch the sparse rainwater and keep the water table high enough to feed the springs and irrigation systems. There were forests of oak and pine.

Old World grazing animals—sheep in particular—were introduced by designees of the Crown. Ostrom utilizes multiple sources, including court transcripts, census documents, and colonial tax ledgers, to illustrate that the introduction of some two million sheep in the Valle by the 1500s resulted in rapid decimation of water sources for crops, fueling epidemics and starvation among the Otomi. By the 1570s, sheep had so overtaken the grazing capacity of the landscape that its hydrology, water table, soil cover, and plant ecosystems were altered permanently. Centuries after the epoch of heavy livestock grazing, the region was characterized by desertic conditions from heavy sheet erosion and sparse harvests with frequent crop failures. Melville argues that a similar process occurred as a result of land grants to settler farmers in the eastern and southeastern tablelands in Australia (Melville, 1997).

In almost all cases, state subsidies in the form of land grants resulted in what Melville refers to as altered baselines or landscape transformations that are all but irreversible even after initial land uses such as grazing or intensive crop production have been phased out or tempered by mixed-use regimes and conservation practices. Examples would include the U.S. Federal Swamp and Overflow Act of 1850, the U.S. Homestead Act of 1862, the U.S. Desert Lands Act of 1872, the Australian Selection Acts, the Canadian Dominion Lands Act, the British Crown Lands Acts, and the Brazilian Colonization and Agrarian Reform programs of the 1940s–1980s. These acts encouraged the settlement of uncultivated lands by granting subnational governments the power to sell acreage cheaply or, in some cases, to donate lands outright to willing cultivators. Such land grants rapidly created incentives for stripping forest and grassland ecosystems and farming by settlers with scant understanding of precipitation and growing conditions. Speculation and graft also marked large-scale land cultivation (Banner, 2007; Branford & Rocha, 2002; Cronon, 1991; Worster, 1979). The expansion of railroads in Australia, Canada, and the United States, and the extension of transcontinental highway systems into the Brazilian Amazon—associated forms of state subsidy—accelerated settlement of land and land-use change by facilitating the long-distance transport of timber, livestock, and crops. As Cronon (1991) observed, the convergence of goods from the U.S. West and capital from the Eastern financial centers in central places such as Chicago in the 19th and early 20th century drove exponential increases in the production of wheat, corn, cattle, hogs, and timber. Commodification of goods through grading and storage narrowed the range of saleable crops and livestock, thus reducing genetic diversity seed and livestock. Meanwhile, sales of commodities through stock exchanges created demand for goods that was often decoupled from decision making about land use, which might well have corresponded to observed limitations of local resource bases. Worster’s account of the 1930s Dust Bowl in the U.S. Midwest similarly demonstrates links between land settlement policies and commodity boom-and-bust cycles that sped desertification and soil loss from overgrazing and excessive plowing (Worster, 1979).

With frontier land colonization schemes largely played out in the Northern Hemisphere and slowing greatly in the Brazilian Amazon, where conservation dictates have rendered most new forest clearing by domestic actors illicit (if still existence), 21st-century land conversion increasingly occurs, as what critics call global “land grabs” or long-term leases of land acreage and water rights to offshore investors. These transnational land colonization deals gained momentum after a spike in food prices in 2007 triggered nervous governments with large populations and large cash reserves to seek new acreage for food provisioning. Private-sector firms also moved from financial sector speculation into direct production, prompting hundreds of large-scale land deals, ostensibly to grow food for export. According to OXFAM International, about two-thirds of these agricultural land deals are in countries with serious hunger problems (OXFAM, 2017).

Such leases function as subsidies that are generally at below-market prices, and they are granted largely by governments in host countries. Where such leases are contested by traditional land users, governments also assume the cost of military enforcement of contracts and forced resettlement of land inhabitants. Leases in this era are for as long as 50 years and have been granted to investors for as little as $1 US per acre for the growing of food and biofuel crops (de Schutter, 2010; GRAIN, 2012). In most locations, the lands in question are currently not in cultivation or are lightly farmed in a mixed traditional economy of nomadic grazing, gathering, hunting, and mixed small plots. Land deals with foreign investors generally include rights to pump groundwater or divert surface waters from rivers and reservoirs. Large-scale monocrops in cultivars such as rice, wheat, and jatropha often require heavy chemical inputs for the growing of crops. In 2017, a database maintained by the nonprofit land analysis organization, GRAIN, indicated that approximately 490 such land deals were under contract or in operation, collectively covering over 30 million hectares in 78 countries.

Untangling the interplay of private and public interests on the leasing and producing end of such land deals is difficult. On the land-lease end of deals, state agencies grant licenses for resource use, often creating legal title where traditional use rights and common law prevailed previously. On the buying end, land leases are often sought by investor groups that include foreign state-owned enterprises or enterprises with extensive state ties. Wholly or partially state-owned firms from the United Arab Emirates, Malaysia, China and Saudi Arabia, for example, have pursued investment deals in Africa and Southeast Asia. In other cases, the provenance of investment capital is less clear: investing corporations with headquarters in entrepôt locales such as Singapore and owners in third-party countries such as India have sought land for food, biofuel, and fiber schemes. Numerous analysts have concluded that the deep well of investment capital is linked to growing stockpiles of offshore wealth. According to Henry (2012), offshore wealth, or cash money and liquid assets held by actors outside their countries of residence, grew from an estimated $2.3 trillion in 1989 to somewhere between $21 and $32 trillion in 2010. Henry’s data show the most rapid increases after 2005, when rates of return on offshore wealth reached 16% per year. Recent studies and investigative reports on offshore banking indicates that shell companies invest in land, urban real estate, and multiple other assets in Panama offshore as a means of laundering money illegally diverted from national treasuries or withheld from tax authorities (Hawkes, 2015; McMichael, 2013).

Production, Price, and Income Support Programs

In 20th-century international trade negotiations, subsidies in the spotlight were generally government payments or direct purchases at guaranteed prices to domestic agricultural producers. Other important concerns were barriers to trade in the form of tariffs or exclusionary rules, as well as export subsidies in the form of food aid and concessionary below-cost food sales. For this reason, the first major contemporary framework accord, the 1994 Agreement on Agriculture, produced from the Uruguay Round of the General Agreement on Tariffs and Trade, focused on government policies that enhanced the revenues of farmers of grain, cotton, dairy, and livestock.

In the 1980s, during the period leading to the Agreement on Agriculture, the OECD assembled the first comprehensive multicountry panel database on agricultural subsidies and in so doing established a working definition for agricultural subsidies that has been used widely in policymaking and trade negotiations. Two indicators in particular are cited most often: the Producer Support Estimate (PSE) and Total Support Estimate (TSE). The PSE, usually measured as a percentage of gross farmgate receipts, refers to the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers. This may refer to funds that supplement prices for crops or livestock, or it may indicate direct income supports to growers. The TSE, generally measured as a percentage of gross domestic product (GDP), casts a more comprehensive net and refers to the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that support agriculture. This may refer to any policies captured by the PSE, but it also captures monies devoted to marketing, export supports, and supplements to agricultural processing industries such as ethanol biofuel.

Measured by these indicators, worldwide government spending on agriculture is considerable and is growing in absolute terms, but it is declining very gradually as a mean percent of national GDP. The OECD reported an annual average of USD $585 billion spent directly on agricultural producers, with an additional USD $87 billion on general services supporting the sector (OECD, 2016, p. 25). As a percentage of the agricultural economy, this amounts to 17% of receipts in the countries included in the OECD survey, which encompassed 50 countries and 95% of world agriculture production (FAO, 2014; OECD, 2016). In 2016, the OECD annual policy and monitoring report on agriculture noted a bimodal trend in state support for agriculture, stating, that “while the average percent PSE of all countries covered … has followed a slightly falling trend over the past two decades, a more significant difference is recorded between the OECD countries and the emerging economies” (OECD, 2016, p. 41). By far the largest increase in state subsidies to agriculture in relative and absolute magnitude since the mid-1990s has occurred in China, whose state support as a percentage of agricultural receipts (PSE) rose from 2.8% in 2000 to 21.3% in 2015. Its total spending on agricultural support went up by a degree of magnitude in the same period, rising from USD $19.2 billion in expenditures on agriculture in 2000 to an estimated 326 billion in 2015 (World Bank, 2015; OECD, 2016). At that point, China’s share of total support to agriculture worldwide was 44%.2

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Figure 3: Country shares of total TSE

(Source: OECD, 2016)

In terms of impact on land use and environment, most government transfers to agriculture since World War II have taken the form of price supports, or minimum prices paid to farmers for specific crops. Governments tend to view such payments as doing double service: they support individual producers’ income but also defend their countries’ international and/or domestic market shares in the commodities they support. Until the late 1990s, as shown in Figure 3, 30 countries accounted for over 90% of all state spending worldwide on direct transfers to agriculture: the 28 states of the European Union, the United States, and Japan. The EU bloc accounted for half of all state subsidies as captured by TSE estimates, and at the height of EU subsidy regimes under the CAP, farmers counted about half their income in price supports. Farmers in return lobbied heavily for the continuance of subsidies, even as surpluses drove down prices and affected farmers overseas, especially in former European colonies with whom EU members traded heavily. As Stead observed of subsidies in the EU during this time:

While the costs of the CAP [were] widely dispersed among millions of EU taxpayers and consumers, its sizeable benefits [were] concentrated on a relatively small number of farmers. Europe’s agriculturists therefore … had a strong economic incentive to apply political pressure for the continuation of current policy … Hence … a bias towards the status quo, and for many years the challenges of solving the problem of overproduction and curbing the CAP’s cost were only addressed through a number of somewhat minor policy adjustments.

(Stead, 2007)

The EU, responding to calls for reform, adopted a set of policies called the MacSharry Reforms in 1992 that partially switched price support to a direct income support model, reducing production lightly in some commodities, notably the resource-intensive meat and dairy. However, the production of grain commodities, including maize and wheat, continued to grow even following the Fischler Reforms in 2003, which were intended to decouple farm income support from production more drastically (Cunha & Swinbank, 2011; Figure 4).

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Figure 4: Production index of major commodities in the European Union (1961=100)

Thus, despite rounds of reform, producer power over the CAP remains strong. Total spending is likely to remain steady, adjusting for inflation, at about 60 billion euros per year (European Commission, 2012). Furthermore, resistance to the so-called greening of CAP payments to support conservation practices (which generally must be verified by government bureaucrats) echoes the experience of the ill-fated Sir Robert Peel who eliminated the Corn Laws. English farmers strongly supported “Brexit” in 2016 due to frustrations with CAP; similarly, farmers in France have polled strongly since 2014 for the anti-EU National Front Party (Bohlen, 2014; dos Santos, 2016). In the United States, production, price, and income support programs are specified in omnibus legislation known as the U.S. Farm Bill, which is reauthorized and rewritten approximately every five years. Much as in the EU, about three quarters of all payments over time have been in price support and income support programs in the form of direct payments, countercyclical payments, ad hoc disaster assistance programs, and compensatory payments—“loan payments” and “loan deficiency payments” in the parlance of the U.S. Farm Bill (Environmental Working Group, 2016).

Notably, the U.S. Farm Bill began in the 1930s during a period of paired economic and environmental crises—the Great Depression and the Dust Bowl. The initial law, the Agricultural Adjustment Act of 1933, addressed a deflationary spiral of low demand and farm surplus by paying growers to reduce livestock herds and fallow farm acreage. It also included crop insurance, disaster relief, resettlement programs for impoverished farmers, farm credit, rural electrification, food distribution, and soil conservation measures (Rasmussen, 1983). Within a few years of its passage, however, portions of the Farm Bill tied to production controls were struck down by the U.S. Supreme Court as encroachments on states’ rights; many conservation and antipoverty measures survived court muster but were phased out or sidelined in favor of production supports during World War II. By the 1950s, producer lobbies overwhelmingly favored expansionary policies that incentivized production increases, larger economies of scale in farming, and overseas sales and aid through the U.S. food program, Public Law 480.

Policies designed to increase production were mostly successful, although as Figure 5 shows, increases of total production of meat, dairy, and wheat have been modest indeed. Maize, on the other hand, increased over three-fold in total production, with a sharp rise after 1991 with new subsidies for ethanol production and increased use of corn-based sweeteners and additives in food.

Agricultural Subsidies and the EnvironmentClick to view larger

Figure 5: Production index of major commodities in the United States (1961=100)

Critics of the Farm Bill charge that subsidies have had poor returns in public goods. Business and pro-free trade groups such as the American Enterprise Institute charge that subsidies have created market inefficiencies and have unfairly blocked competition from producers abroad. Environmental groups and small-farm advocates argue that subsidies have created incentives for large monoculture production units, which now capture about 72% of farm receipts (USDA Economic Research Service, 2016). Historically, price supports and income payments compensated farmers per unit of land planted in scheduled commodities (usually based on historical production on that acre of land). In recent iterations of the Farm Bill, older forms of price supports and income payments were shifted to government- backed crop insurance. Critics of the 2014 Farm Bill allocations argued that crop insurance would prompt growers to plant on lands that would remain uncultivated: marginal lands, highly eroded lands, sloped lands, and ephemeral wetlands (Faber, Rundquist, & Male, 2012). Longer-term studies of Farm Bill policies showed that the very act of shifting marginal lands back and forth between cultivation and fallow or light grazing had serious negative impacts. Lubowski et al. (2006) found that “lands moving between cultivated cropland and less intensive agricultural uses are, on average, less productive and more vulnerable to erosion than other cultivated lands, both nationally and locally. These lands are also associated with greater potential runoff and leaching compared with cultivated land nationally” (Lubowski et al., 2006, p. 1). Critics of the U.S. Farm Bill have argued that intensive monocrops harm streams and riparian areas, estuaries, and coastal ecosystems, and are implicated in damage to grasslands and bird species. They also promote losses in soil fertility and increased greenhouse gas emissions (Defenders of Wildlife, 2017; Environmental Working Group, 2017).

In comparison with the CAP in the European Union, the nature of legislative policymaking around the U.S. Farm Bill makes it far less likely to shift heavily toward conservation-based measures and pure income supports to small farms. Single-member congressional districts and the near-unlimited power of lobbies to influence farm-region elections lends the greatest advantage to large producer groups and agribusiness in shaping the allocation of public transfers to agriculture. As Robbie Feinberg of the campaign watchdog group Open Secrets observed of the lobbying efforts to expand farm insurance payments:

Last year [in 2014], the farm bill was the sixth-most heavily lobbied measure on Capitol Hill, with 350 organizations spending cash to get their voices heard as it was being shaped. Much of that lobbying was done by agricultural groups like the American Farm Bureau and the International Dairy Foods Association, which listed the bill on a combined 34 of their disclosure reports in 2013; crop insurance was the issue that appeared the most frequently on these reports. And the two groups weren’t alone in their push. Since 2006, the American Association of Crop Insurers and the National Association of Wheat Growers, for example, have each mentioned crop insurance in lobbying disclosure reports more than 60 times.

(Feinberg, 2014)

The Chinese state has long maintained a heavy hand in agriculture. In antiquity and the early modern era, tribute systems maintained imperial granaries and provided labor for hydraulic works (Wittfogel, 1957). In the communist era, Maoist policies were characterized by state ownership of land and control of food supplies, grain in particular. The Chinese communist government was also the world’s leading irrigator: over 83,000 dams were built between 1949 and 1990 (Fu, 1997). Agricultural reforms in 1978 distributed land to rural households, but farms remained very small by world standards, averaging 0.5 hectares, with little transferability of land assets in the hands of farmers themselves. The Chinese state successfully induced farmers to increase grain output to feed a growing population through input subsidies. Fertilizer usage in China grew from about 1 million tons in 1960 to 40 million tons by 2000, with no net increase in the land area harvested (FAO; Spector & Lubin, 2012). During this time, as noted in Figure 6, total production in basic grains increased five-fold.

Agricultural Subsidies and the EnvironmentClick to view larger

Figure 6: Agricultural production and harvested area in China, 1961–2014 (FAOSTAT, Gale)

Despite its extensive role in regulating land use in agriculture, the Chinese government was a latecomer to subsidies in the form of production, income, and price support programs. Prior to joining the World Trade Organization in 2001, agriculture was a net taxed sector.3 Price supports, insurance, and direct payments to grain producers, which began in earnest in 2003, were made possible by growing cash reserves from China’s exports; furthermore, they were considered necessary by the state in order to avert treacherous food price spikes that inevitably would spark unrest in the cities. Urban consumers with rising incomes sought more fruits, vegetables, milk, and meat products; urban populations, moreover, swelled in total numbers as tens of millions of rural Chinese migrated to urban factory jobs.

China’s subsidies thus far have been driven little by the forces that swelled net transfers to agriculture in the EU, the United States, and Japan, where powerful farm lobbies and a treadmill of commodity surpluses and low prices have shaped farm policies over time. Instead, Five-Year Plans have focused on the issue of rapidly rising incomes and demands for produce, meat, and processed foods amid advancing limitations of the domestic natural resource base. China’s output in agriculture has grown by 4% annually since 1990 (Gale, 2015), while its economy has grown by 8% annually (Zhou & Leung, 2015), depressing incomes in agriculture relative to other industries. Furthermore, long-term liabilities include rapid loss of farmland. Philpott (2013), using Food and Agriculture Organization (FAO) and OECD data, reports that 40% of China’s arable land has been degraded by soil toxicity, erosion, and acidification, and nearly 20% is polluted by industrial effluent, sewage, excessive farm chemicals, or mining runoff (Philpott, 2013).

Accompanying these losses are large net losses of farmland to industrial expansion, driven by the state’s own industrial finance policies, which function as subsidies to urban industry. The central government’s taxpayer-funded China Development Bank is the primary source of capital for new industrial development and urbanization, and it lends to local governments through what are called Local Government Finance Vehicles. Local governments, which do not raise municipal taxes, have exclusive domain over farmland leases and sales, which they in turn use as collateral to secure funds for industrial development and urban housing complexes. Local officials have ample power to compel landholders to sell their properties and accept urban relocation (Sanderson & Forsythe, 2013). This, along with net losses to erosion and pollution, are driving a decline in net arable farmland from its present low level at 0.09 hectares of arable land per capita—about half the global average and a quarter the average for OECD member countries (Philpott, 2013).

Biofuels Production, Emissions Trading, and Offsets

The United States, Brazil, and the European Union have large-scale programs supporting energy generation through ethanol, biodiesel, and waste materials (e.g., methane, manure, solid waste). Among biofuels, bioethanol dominates land use. The United States is the world’s largest producer and consumer of biofuels, accounting for about 45% of global biofuels (Sia Partners, 2014). Brazil, the European Union, and China account for nearly all the remainder (FAOSTAT). Emerging policies that provide subsidies and tax incentives for biodiesel use, however, may shift the balance of land use for energy substantially more toward tropical belt agriculture as greater proportions of biodiesel are derived from palm oil.

Energy security concerns spurred early state investments in biofuels production. The 1973 OPEC oil embargo prompted a number of governments to initiate research and development in ethanol biofuels. Brazil, which by the 2000s would emerge as the world’s second-largest producer of biofuels, pioneered bioethanol technologies. In 1975, Brazil established the Pró-Alcool program, pairing state-backed investment in sugar-based ethanol with production on large estates belonging to landowners with close ties to the military-controlled government (Eaglin, 2015). The early success of the biofuels program in Brazil was due to the relatively efficient source for ethanol production (sugarcane) as well as the government’s support for the construction of ethanol distilleries, government guarantee purchases of ethanol by Petrobras, the state-owned oil company, and subsidies and tax incentives provided to the domestic automobile industry for conversion of the nation’s auto and truck fleet to ethanol-dependent and flex-fuel vehicles. The government established mandatory blending of anhydrous ethanol with gasoline in 1976, and by 1993, the mandatory blend was fixed at 22% by volume. By 2008, sugarcane ethanol represented 17.6% of the country’s total transport energy consumption (Ministry of Mines and Energy, 2009).

By contrast in the United States, ethanol production went through cycles of boom and bust after the oil shocks of the 1970s. Tax incentives offered in 1980 for ethanol production prompted the establishment of over 160 ethanol plants, but by the mid-1980s, plummeting prices of oil and ebbing Farm Bill support for the industry drove most of the early-generation plants into bankruptcy (Kolb, 2017). Clean Air Act amendments passed in the 1990s then revived the industry by providing mandates for ethanol blending with gasoline as a means of reducing airborne lead and particulates. Later, the Energy Policy Act of 2005 imposed a Renewable Fuel Standard, with a goal of incorporating 7.4 billion liters of ethanol in fuel supplies by 2012 (about 5% of anticipated total consumption). This required fuel distributors to purchase certificates of renewable fuel content in proportion to their total sales or face steep fines. However, emerging data on inefficiencies in conversion of maize to biofuel, combined with lower-than-projected actual biofuels consumption (about 4.7 billion gallons per year), prompted new direction in the Energy Independence and Security Act of 2007. Policymakers indicated a consumption goal of 36 billion gallons by 2022 but specified that the 21 billion gallons of biofuel must be derived from a noncornstarch product such as sugarcane, biodiesel, a cellulosic base such as switchgrass, or as-yet experimental “advanced biofuels” that come from algae, sorghum, or wheat by-products (Energy Independence and Security Act, 2007).

The European Union entered the field of biofuels after Brazil and the United States but advanced quickly. After halting efforts at biofuels production in the 1990s, an EU-wide biofuels policy, the Renewable Energy Directive of 2003, established production and industry supports that aimed for 20% alternative fuels by 2020. In the following decade, member governments subsidized biofuels through research and development grants and transportation retrofits that introduced electric buses and some 3700 bioethanol fuel stations in Europe (European Biofuels Technology Platform, 2017). Overtaking ethanol, biodiesel production and use in the EU rose from negligible quantities in the early 2000s to 2.6 billion gallons per year—about one-eighth of total global production of all biofuels (European Parliament, 2015). The projected origin of EU biodiesel—a centerpiece of its fuels policy—was intended to be a mixture of crop and waste-derived biodiesels that reduced carbon emissions as its primary goal. However, nearly a decade after the launch of the EU’s biofuels policy, subsidized markets had created an unintended spike in palm oil imports from Indonesia and Malaysia, increasing five-fold to some 800 million gallons per year by 2012 (Neslen, 2016).

Critics have argued that production of ethanol through food crops such as corn and soy is wasteful of land and water resources. In widely cited studies of environmental impacts of biofuels, Scharlemannn and Laurance (2008) and Righelato and Spracklen (2007) indicate that total greenhouse gas emissions and aggregate environmental costs are significantly greater per unit of energy generated than from the extraction and burning of fossil fuels when land conversion is accounted for in life-cycle analyses. Critics also have charged that bioenergy from crops also increased the specter of hunger among the world’s poor. The development of biofuels in the United States after passage of the Renewable Fuel Standard in 2005, for example, drove up the price of maize by 400% by 2012 (Sia Partners, 2014). Price spikes in food staples occurring in 2007 and 2008, though mostly due to commodity price fluctuations and speculation in global financial and securities markets (Bawden, 2012; Pace, Seal, & Costello, 2008; Philpott, 2011), nonetheless highlighted a possible zero-sum game in which increased production of biofuels would prompt attendant land-use changes that responded to global food needs and rising demand for food grains.

State agencies and the bioenergy research community in the European Union and the United States responded to these concerns, focusing on the issue of how crop use in global energy chains affected land use and total carbon emissions, labeled in studies and reports as Indirect Land Use Change (ILUC). Research also turned to the question of added carbon emissions and fertilizer and pesticide use. In the United States, Searchinger et al. found that corn-based ethanol, instead of producing a 20% savings in carbon emissions, as was assumed at the outset of the Renewable Fuel Standard of 2005, stood to double greenhouse gas emissions over 30 years if one accounted for rising prices of grain worldwide and the corresponding response of growers to price signals. The authors also found that new-generation biofuels also carried a high environmental price: if grown on U.S. corn lands, biofuels from switchgrass increased emissions by 50% due to ILUC (Searchinger et al., 2008). Subsequent studies using added parameters that quantified emissions from conversion of specific land types (grassland, forest, wetland) and ranges of fuel yields per hectare indicated even greater bands of uncertainty in emissions costs of ILUC, and possibly much greater environmental impacts than Searchinger et al. had estimated. Concerns about the impact of biofuels on land use and hunger prompted a new European Union directive in 2015 that limited biofuels derived from food crops to 7% of total use, with the aim of directing fuel production to waste materials.

Finally, despite accumulating data on the costs of biofuels, incentives for superfluous production is likely to expand production, ironically as a result of public policies designed to reduce greenhouse gas emissions. In Brazil, for example, carbon credits linked to the Clean Development Mechanism have resulted in significant expansion of large-scale hog farming using concentrated animal feeding operations (Cavalcanti, 2012). Whereas the methane captured from hog manure is considered a green or renewable fuel, large amounts of acreage dedicated to feed grains to fuel the hogs carries significant consequences for soil and water quality.

Conclusion

State policies in agriculture, which have included cash transfers to agriculture, land colonization programs, high dams and irrigation schemes, and government procurement programs for biofuels, have together spurred an astonishing increase in the world’s total production of food, energy, and fiber. This new abundance in turn has shifted where people live, what they eat and wear, and what lifestyles they expect to maintain. The role of governments in aligning these shifts to match the limitations of the Earth’s physical and biotic systems has yet to be defined. Unquestionably, political stability and human welfare will depend on it.

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Notes:

(1.) Although the term subsidy is widely used in policy circles, there exists no consensus on its meaning. According to the Oxford English Dictionary (2016), the English term is ambiguous, with alternate meanings applying to selective tax forbearance or monetary grants to citizens for production of goods on the one hand, or confiscations of the same from selected groups of citizens. The term has variously applied to practices of taxation levied on imports and exports, to taxes levied by the state for use in foreign wars, and to donations of money or property for purposes of assistance.

(2.) In agriculture, as Peterson notes, “deciding just what constitutes a subsidy and what does not is not without controversy” (2009, p. 12). The OECD indicators are cited widely but are not uncontroversial. Trade representatives for Indonesia and China and a number of economists have argued that the TSE and PSE do not provide adequate bases of comparison of support for agriculture because of currency rate conversion errors, productivity differences, and assumptions of equivalency between market prices and reference prices (Wise, 2004). These assumptions reinforce perceptions that the rules of agriculture written in the Uruguay Round reflected the interests of the OECD, not infrequently referred to by critics and champions alike as the “Rich Man’s Club.” At the time the measures were developed, the OECD’s 24-state membership was limited to the United States, Japan, western Europe, and several British Commonwealth powers.

(3.) Farmers continue to be dogged by high taxes and forced land sales at local levels, which is a factor driving thousands of protests per year.