Why subsidy remains integral to agriculture sector?

In developing countries subsidy is provided for agriculture development in various forms.  Providing subsidy has almost become a tradition but the purpose for which it is provided is least understood by most.

Some countries give subsidy knowing fully as why it is given.  They know it is genuinely needed and therefore it is given consciously.   

Some countries give for political reasons without doing fair assessment of the need.   

Some countries follow what others does with no vision and lost focus.

The subsidy provided to agriculture is the most debated topic at national, regional and global forums.  The discussion is either influenced or lead by people from developed countries.  

The highest amount of subsidy to agriculture is given by the developed countries.  

Dr. M S Swaminathan, the icon of agriculture in developing countries says: "It would be more appropriate to refer the limited support provided to the farmers as support to sustainable farming, rather than designating as subsidy.

In developed countries the agriculture is essentially a commercial occupation where hardly five per cent of the population depends on agriculture for their livelihood and the farmers are safeguarded by the extensive financial support through the green box provision of WTO.

But in developing countries the agriculture is the principal occupation.  The farm size is small and the marketable surplus is low.  As a result, farm families require social protection and therefore it is wrong to designate the limited support given to them as subsidy."

There is a differences between agriculture in developed countries and in developing countries.  If we fail to understand this, we are certain to miss the boat for sustainable development.

The developing countries need sustainable agriculture that supports sustainable livelihood farming communities which constitute over 70% of the population.  

We need sustainable agriculture that produce healthy food and provide high economic profit, and does not harm the environment. 

Some countries defend agriculture subsidy knowing fully the economic implication, and therefore provide subsidy for specific goods and services and reaps the highest economic benefits, as desired. 

In those countries where subsidy is seen as a tool to garner voters' support provide subsidy to goods and services listed in the wish list which may or may produce tangible economic and environmental impacts. 

Those countries simply following others remain confused, defenseless and make inconsistent statement and execute inconsistent actions.

Those countries who provide subsidy knowingly know that the value of subsidy gets translated into higher net incomes for farm households, ensure self sufficiency and competitiveness in the market, generates export volumes and earns export earnings.  They exactly know that agriculture development is vital and it must be developed first.  It must be profitable, stable and sustainable. 

In the process agriculture development, the profitability and profit have been overlooked.  The agricultural institutions are strengthened, extension services are provided, farmers are trained, technologies and production methods are demonstrated but the profitability and profit part is left to the farmers to experience.  

The way we look at agriculture needs to be reversed.  Agriculture production must be approached from profitability and profit end and redesign for achieving the desired level of profitability and profit respecting the cultural heritage and environment. 

Those countries which provide subsidy for political reason defend that subsidy should be provided to reduce poverty and improve food security by enabling farmers to use the technologies and inputs.  By default their argument holds right but does not necessarily yield economic efficiency on the total sum invested on subsidizing goods and services. 

It must be understood that the actual need to provide subsidy is to enable farmers for initial capital investment on production technologies and inputs to increase labor productivities and production, and ensure that their farming enterprise is profitable.

When the farming enterprise becomes profitable, the whole issues of rural poverty, rural-urban migration, food security and so on automatically become secondary and dissipate naturally.

The irony is that the technologies are produced in more developed countries and they are expensive.  The cost of production of Bhutanese farmers increases with high cost of production technologies and inputs and which brings down their profit.   

As such the costs of technologies and inputs are high, cost further increases for Bhutanese farmers with addition of custom duty and sales tax.  For example a greenhouse imported from China, the cost increases by 30% with custom duty and sales tax.  Similar are the other cases.  In contrast, in India, the greenhouse is heavily subsidized to the extent of 50 to 75 percent.

In Bhutan fertilizers' price is almost double than in India.  For example the prices of fertilizers like Urea and SSP (Single Superphosphate) are only Rs 350/= to Rs 400/= for a 50 kg bag across the border in India while the same bag of fertilizers cost Nu 895/= in Bhutan.   

It is not only the high labor cost is making Bhutanese farming unprofitable and not attracting the youths into agriculture profession.  It is the high cost of production technologies and inputs that are responsible.  The prices of local produce are high in local market yet not providing sufficient profit to the farmers. 

It is argued that subsidy once put in place is difficult to remove.  It is difficult until the profit is not enough without subsidizing the technologies and inputs.   

Subsidy on agricultural technologies and inputs should be provided until a virtuous circle of more production, more food, higher incomes, more profit and no hunger and no poverty is attained.

Providing subsidy to agriculture production technologies and inputs is therefore must not be understood as creating dependence on the part of the farming communities but it should be seen as conscious and deliberate attempt to make farming profitable.

Agriculture must be seen as an industry that engages over 60% work force of the country. 

Subsidy in agriculture is not an undue welfare grant given to the farmers. 

There must not be fear that subsidy would create dependence compromising sustainable development.  Instead it should be positively considered as an investment to have stable economy that ensures economic self reliance. 

Subsidy to agricultural technologies and inputs should be considered as the share of the public sector investment.

With right perspective, the subsidy for agriculture production technologies and inputs should be seen as an instrument of agriculture finance. 

There is a need to better understand the role of agriculture subsidy in developing economies. 

The good thing about subsidizing agricultural technologies and inputs is that it creates public goods that benefits the entire economy of the country and provide a strong base for ensuring economic sustainability. 

Until agriculture is developed and it is economically profitable and sustainable, the overall economy in the long run may not be sustainable because when agriculture fails others cannot succeed particularly in a country where agriculture engages most of its citizens. 

To have the desired impact of subsidy on agricultural production technologies and inputs, the policy makers have the responsibility to decide as what percentage of agriculture development budget should constitute the subsidy budget.   

More important decision the policy makers have to make is the objects to be subsidized and the extent of subsidy.  The desired impact must be measurable too.  

The emerging issue on agriculture subsidy is not the subsidy per se but the mode in which it is provided.  Should it be paid to importers, wholesalers or retail dealers, or given to farmers directly.  Increasingly the argument is in favor of providing to the farmers directly in which case the beneficiary farmers appreciates the support being provided by the Government.