Agricultural Subsidies: Resurging Interest in a Perennial Debate

Abstract

Subsidies have a long history of use – and abuse. Food security has historically been a high priority for policy makers, providing the core justification for agricultural subsidies. Interest in agricultural subsidies has resurged in recent years driven by two factors: (i) the global food price spikes of 2007, with sustained high prices in subsequent years, have renewed concerns about food security, and (ii) the frustration with slow progress in agricultural growth in several parts of the world, including several countries of Africa and Asia where food security remains a major concern, has increased calls for input subsidies, especially for fertilisers to stimulate productivity growth. Faced with the slow pace of structural transformation, persistent rural poverty, and a widening gap between the incomes of rural and urban populations, political and social imperatives compel policy makers to find ways to boost the incomes of a large share of the population engaged in agriculture, and subsidies are often seen as a convenient way of doing so. Past subsidies resulted mostly from trade policies and output price supports. Most current subsidies in developing countries are direct input subsidies, at times complemented by price supports (backed by public procurement) and trade policies. Despite their widespread use, or perhaps because of it, subsidies continue to be vigorously debated amongst policy analysts and researchers, often taking seemingly political and ideological overtones. Subsidies (and the specific forms they take) have their justifications but also some serious drawbacks. The costs relative to the benefits associated with different subsidies are at the heart of this debate. The conceptual arguments in favour of subsidies have appeal (see Bardhan and Moorkherjee, 2011; World Bank, 2007), but a poor track record of implementation and the historical legacy of subsidies, particularly the high opportunity costs of scarce budgetary