Food subsidies perpetuate hunger
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Food subsidies perpetuate hunger

A sign for the government's Khon La Khrueng co-payment subsidy scheme at a noodle stall. The subsidy offers up to 150 baht cash back per person per day for food, drink and general goods purchases. Arnun Chonmahatrakool
A sign for the government's Khon La Khrueng co-payment subsidy scheme at a noodle stall. The subsidy offers up to 150 baht cash back per person per day for food, drink and general goods purchases. Arnun Chonmahatrakool

If you want an image of subsidised food in the world, you might think of Egypt, where the price of flatbread is fixed and more than half the population lives on loaves costing just 0.05 Egyptian pounds (8 baht) thanks to heavy government support.

Alms for the needy are one of the oldest forms of charity. The tradition persists to this day, in the form of food stamps in the US, food banks in the UK, free school meals in Japan, direct subsidy programmes like Egypt's, and India's price controls on farm produce.

On top of that are exemptions from sales taxes for essential ingredients in many countries. With nearly 800 million people -- about a 10th of the world's population -- unable to feed themselves adequately last year, you might expect this form of welfare to be growing in size and significance.

In fact, it's close to the opposite. Subsidising food is largely not an activity that involves the world's poorest people who are most at risk of hunger, but its richest and most amply-fed.

The spending that does go out overwhelmingly goes to farmers rather than the hungry -- and while much of that helps to increase supply of edible goods, hundreds of billions of dollars are doing the opposite, reducing the amount of nutrition available to feed the world.

A recent report by the United Nations Food and Agriculture Organization breaks it down. While subsidies direct to consumers -- especially if targeted at those most in need -- are one of the most effective ways of tackling hunger, they're a small part of total global support at just US$72 billion out of $630 billion dedicated to the food and farming sector worldwide.

What's more, they're skewed towards people in high-income countries who are least at risk of going short. In the richest nations, 4.6% of the value of agricultural output comprises consumer subsidies. In the poorest ones, the figure is 0.6%.

Far more important is what's given to farmers. Some $92 billion goes to subsidising inputs such as seed and fertiliser. A further $152 billion is spent on more broad-based support calculated on the acreage of farms, general output levels or environmental factors.

Again, this money is largely going to rich countries, which provide producers with incentives equivalent to 24% of output, falling to 16% in upper-middle income countries such as China and Brazil.

In less affluent nations, export bans, tariffs and other market interventions intended to reduce costs to local consumers often have the opposite effect, acting as a tax on output and discouraging farmers from growing sufficient produce. Those measures increase the cost of production by 4% in lower-middle income countries such as India, rising to 9% in low income countries like those in sub-Saharan Africa.

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

In many developing countries, it's not even clear that cheaper food is always the main objective. When the poorest people in your country are farm workers, any drive to reduce the cost of nutrition risks lowering incomes at the bottom of the heap.

The political risks of hurting the rural lower-middle class are even greater, given their propensity for political action. Indian Prime Minister Narendra Modi's attempt to unpick his country's mandi system -- whereby the government would buy produce at fixed prices through its own marketing yards -- resulted in more than a year of protests before it was abandoned. Farmers feared that the benefits of a free market in food would accrue mostly to traders, and preferred to stick with the status quo.

The world is facing multiple challenges in feeding itself as its population grows towards 11.2 billion in 2100 and climate change degrades and reduces the area available to harvest. Alongside the rising burden of hunger is a tide of obesity that's stalking poor countries.

That's due in part to the fact that calories from fats and sugar are cheaper to produce than those from cereals or healthy vegetables, a situation that itself is related to the way food subsidies favour some crops over others.

Something has to change. If governments facing fiscal strain from the aftermath of the Covid-19 pandemic want to do something about the food crisis that's come in its wake, they could do worse than look at the way their own spending is exacerbating the problem. ©2022 Bloomberg

David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.

David Fickling

Bloomberg Opinion columnist

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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