Public Disclosure Authorized The greening of farm support programs: Public Disclosure Authorized international experiences with agricultural subsidy reform Public Disclosure Authorized Public Disclosure Authorized Emilie Cassou WORLD BANK | 2018 Contents Purpose ......................................................................................................................................................... 4 Background and conceptual framework ....................................................................................................... 5 International experiences reforming and greening farm support programs ............................................... 9 Republic of Korea ...................................................................................................................................... 9 China ....................................................................................................................................................... 11 Vietnam ................................................................................................................................................... 13 European Union ...................................................................................................................................... 17 United States ........................................................................................................................................... 21 India ........................................................................................................................................................ 23 Common patterns of reform ....................................................................................................................... 23 Annex I: Republic of Korea: agricultural subsidy reform with a focus on efforts to green farm support .. 25 A brief history of agricultural policy ........................................................................................................ 25 Environmental subsidy reform ............................................................................................................... 26 Annex II: China: agricultural subsidy reform with a focus on efforts to green farm support ..................... 29 Brief history of agricultural support programs ....................................................................................... 29 Status as of 2015 ..................................................................................................................................... 29 Reforms under way ................................................................................................................................. 30 Less market distortion ........................................................................................................................ 32 Environmental protection ................................................................................................................... 32 Farm consolidation, intensification, and modernization .................................................................... 34 Improved targeting of grain farmers .................................................................................................. 35 Annex III: EU Common Agricultural Policy reform: the greening of farm income support ........................ 36 Brief history of the Common Agricultural Policy’s objectives and instruments ..................................... 36 The rise of environmental sustainability................................................................................................. 38 Details on cross compliance, green direct payments, and regional development program payments . 41 Cross-compliance ................................................................................................................................ 41 Greening payments ............................................................................................................................. 43 Agri-environment and climate payments and other environmental subsidies under the rural development programs....................................................................................................................... 44 The greening of CAP in perspective: effectiveness and political economy ............................................ 45 1 Findings from an audit of greening payments .................................................................................... 45 Greening in its political and economic context .................................................................................. 47 Annex IV: United States: major agri-environmental subsidy programs ..................................................... 49 References .................................................................................................................................................. 52 Cited EU regulations.................................................................................................................................... 58 Resources by country .................................................................................................................................. 60 Indonesia ................................................................................................................................................. 60 Korea ....................................................................................................................................................... 60 China ....................................................................................................................................................... 61 Vietnam ................................................................................................................................................... 63 EU ............................................................................................................................................................ 63 Cited EU regulations ............................................................................................................................ 65 United States ........................................................................................................................................... 66 India ........................................................................................................................................................ 67 Figures Figure 1: Producer support estimates in selected OECD countries, 2000–15 .............................................. 5 Figure 2: Pros and cons of Indonesia’s fertilizer subsidy .............................................................................. 6 Figure 3: Indonesia fertilizer subsidies, and international urea prices, 2004–2018 ..................................... 7 Figure 4: Common patterns in the evolution of farm support objectives, and their interpretation ............ 8 Figure 5: Common shifts in the choice of farm support instruments ........................................................... 9 Figure 6: China expenditures on major agricultural subsidy programs, 2004–12 ...................................... 12 Figure 7: CAP expenditures, 1990-2016 (actual), and 2017 -2027 (projected) .......................................... 19 Figure 8: Architecture of green subsidies under the EU’s Common Agricultural Policy............................. 20 Figure 9: Broad and specific objectives of the 2014–2020 Common Agricultural Policy: “smart, sustainable, and inclusive growth” ................................................................................................................................. 37 Figure 10: EU budget spending on agri-environment, 1993–03 ................................................................. 39 Figure 11: Spending on cross-compliance and greening under CAP pillar 1 .............................................. 40 Figure 12: Projected outlays under the 2014 Farm Bill, 2014–18 .............................................................. 49 Boxes Box 1: Snapshot of Korea’s farm sector ...................................................................................................... 10 Box 2: A brief history of credit subsidies in Vietnam .................................................................................. 14 Box 3: Coffee growing in Vietnam: weak incentives for sustainable production practices ....................... 16 Box 4: The evolution of CAP spending: from market management to income support ............................ 18 Box 5: Conditions for receiving direct payments under the EU’s Common Agricultural Policy ................ 19 Box 6: Major conservation programs in the United States (in the 2014 Farm Bill) .................................... 22 2 Box 7: Korea’s rice (price) support policies ................................................................................................. 26 Box 8: Fertilizer subsidies in China .............................................................................................................. 30 Box 9: Highlights from China’s Sustainable Agricultural Development Plan, 2015–2030 .......................... 31 Box 10: Evolution of the CAP’s objectives: from food security to green growth ....................................... 36 Box 11: The CAP’s early years: they system of price support ..................................................................... 37 Box 12: Two pillars