How can subsidies make most sense?

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China Gulang region

Our Foundation and The Nature Conservancy (TNC) have recently published three joint studies. These refer to subsidies and soil health in China. Yuan Zhou leads our program there, and our Policy work internationally. We asked her to tell us more. 

Syngenta Foundation: Why are these papers important?
Yuan Zhou: ‘Green’, sustainable agriculture has recently become a top government priority in China. Soil health and farmland degradation are major challenges there. Numerous policies and subsidy schemes aim to address this. However, little was known so far about how the subsidies have worked in practice. TNC and we supported the studies to fill this gap.

Taking the studies together, what are some common threads?
Chinese agricultural subsidies are now tilting towards income support and protection of farmland productivity. Our analysis of 12 piloted subsidy policies suggests rather unclear sustainability outcomes. Farmer participation is weak in some cases. It’s also difficult to develop long-term mechanisms for when funding ends. The good news is that policymakers respond fast. They adjust, expand or eliminate subsidies every year.

And when you look in more depth…?
Analysis of subsidy policies on organic fertilizers and crop rotation reveals benefits for farmers and the environment. But some issues are also apparent. These include farmers’ lack of motivation, a general lack of knowledge and standards related to organic fertilizers, and a shortage of labor to implement the rotations. Fallow and rotations may sound like old practices, but many smallholders don’t know how to implement them well. They need more capacity building, i.e. technical assistance and training. That’s one of our study suggestions. We also propose longer-term planning of subsidy policies, scientific guidance on nutrient management and crop rotation, tailored compensation mechanisms, and better market integration of ‘sustainable’ products.

Why did you choose Gansu, Inner Mongolia, and Hebei as the provinces in which to study local practice?
Rather than geography, our starting point was policies’ relevance for smallholders. That pointed us to subsidies for replacing chemical fertilizers with organic ones in fruit, vegetable, and tea, as well as for crop rotation and fallow. We then selected provinces that have adopted such subsidies. Gansu was one of the first to implement the policy on organic fertilizers. So we and our local partners studied the typical smallholder crop of apples there. Hebei was an early adopter of policies encouraging fallow land. Potato-growing areas of Inner Mongolia provide good opportunities to study crop rotation subsidies.

Your paper on replacing chemical fertilizers with organic alternatives points to several challenges related to smallholders. What is the story here?
One issue is that fertilizers are expensive. For smallholders, they account for the largest proportion of material inputs. From 1998 to 2017, the prices of nitrogenous, phosphate, and compound fertilizers all rose considerably. Subsidies can cause long-term dependence on synthetic fertilizers, make wasteful use more likely and thus damage soil health. The need for Chinese agriculture to ‘go green’ means there will be less demand for these products in the future. However, as our study points out, farmyard manure and commercial organic fertilizer aren’t always great answers. They may contain harmful substances, such as heavy metals, but few smallholders know that. I think an industry standard for organic fertilizers would be a critical step forward. Meanwhile, farmers require more training on such topics. They need generally to become more aware of soil health issues. 

The study of subsidies for crop rotation and fallow land also lists several challenges. You say that rotational fallow standards “cannot be one-size-fits-all”, “knowledge accessibility and training of farmers are not enough”, “technological support could be stronger, and the regulatory mechanism needs to be modified to consider new innovations.” How can the Syngenta Foundation help here? 
In the Policy arena, we hope to catch decision-makers' attention and encourage them to address these issues. On the ground, our local team can support farmers with capacity building and knowledge transfer. 

How can other nations benefit from these studies as a whole?
Farm subsidies are a big topic worldwide. How China addresses soil health is interesting for other countries, especially those with predominantly smallholder agriculture. Our studies show that it is not easy to motivate farmers to change practices, and that subsidy policies need long-term planning, with frequent feedback and adjustment. Technology, markets, and policy need to work as a trio. Then a country can create an enabling environment for more sustainable practices.

Our Foundation has also studied subsidies elsewhere, notably in India. Seen internationally, what are the main advantages and disadvantages of agricultural subsidies for smallholders?
Subsidies can be a mechanism to give farmers access to otherwise unaffordable inputs and services. Conventional examples are price reductions on fertilizer or seed. They have recently been joined by subsidies for solar panels, micro-irrigation, organic fertilizers, and other ‘environmental’ products. However, the trend is now towards income support rather than expense reduction. Subsidizing inputs has had some negative consequences, such as overuse of nitrogen fertilizers and over-extraction of groundwater.

In my eyes, another disadvantage of subsidies is that smallholders can become dependent on them. They get used to having cheaper inputs and then base their farming decisions too heavily on what’s subsidized. This can lead to major problems if a subsidy suddenly stops. Subsidies can also distort markets and crowd out competition. Countries that introduce subsidies need thoughtful plans for synchronizing them with market forces, and then for phasing them out. 

As well as bringing risks, subsidies (for anything) are by their nature not very sustainable. Why do policymakers around the world nonetheless use them so much in agriculture?
I think there are several aspects to this phenomenon. First, the cost of production differs hugely between regions. Globalization enables trade in cheaper food from abroad. Many industrialized countries use subsidies to protect rural lobbies and the local food supply. Developing countries often subsidize poorer farmers to support their production and income; they also give subsidies to reduce food prices. Those are what one might call “politically motivated” payments.

A second aspect is that agriculture is hard work, risky, and often badly paid. Subsidies redistribute taxpayers’ wealth to farmers. Thirdly, food prices rarely reflect the environmental cost of production.  Subsidies can help restore damage to the air, soil, water, or forests, for example. So they are a very important topic for study! 

Project research results from the SFSA-TNC collaboration

Yuan Zhou leads the Foundation’s policy research and advocacy platform and oversees the China Program. She advises SFSA, our partners, and governments on policy development related to agricultural subsidies, regional agricultural economic integration, seed policy and regulation, food safety standards and traceability, agricultural mechanization, agricultural insurance, technology innovation, and sustainability issues.