- ➔ Repurposing current public support to food and agriculture to increase the availability of nutritious foods to the consumer can contribute to the objective of making a healthy diet less costly and more affordable, globally and particularly in MICs.
- ➔ Repurposing existing fiscal subsides is found to provide the largest improvement in the affordability of a healthy diet, particularly if they are shifted from producers to consumers. In this case, agriculture’s GHG emissions are found to fall, but there are potential trade-offs in poverty reduction, farm incomes, total agricultural output and economic recovery.
- ➔ Shifting price incentives globally by repurposing border measures and market price controls can also make a healthy diet less costly and more affordable, albeit less than when fiscal subsidies are shifted from producers to consumers. With this option, GHG emissions from agriculture would fall, while potential trade-offs would also generally be avoided.
- ➔ When repurposing public support to make a healthy diet less costly, policymakers will have to avoid potential inequality trade-offs that may emerge if farmers are not in a position to specialize in the production of nutritious foods due to resource constraints. This could be particularly the case with small-scale farmers, women and youth.
- ➔ To take advantage of the opportunities that a global repurposing of border measures, market price controls and fiscal subsidies may offer in practice, countries will have to consider their commitments and flexibilities under WTO rules.
- ➔ Where agriculture is still a key sector for the economy, jobs and livelihoods, mainly in LICs but also in some LMICs, it will be crucial to increase and prioritize public expenditure for the provision of GSS. This is an effective way to bridge productivity gaps for producing nutritious foods and enabling income generation to improve the affordability of a healthy diet. However, stepping up this type of support in these countries will require significant development financing.
- ➔ Other key agrifood systems policies will be needed to complement repurposing efforts to ensure shifts in food supply chains, food environments and consumer behaviour towards healthy eating patterns. These include, for example, policies on food reformulation and fortification, regulation of food labelling and marketing, taxation of energy-dense foods and healthy public food procurement.
- ➔ In addition, social protection policies may be necessary to mitigate possible trade-offs from repurposing, particularly short-term income losses or negative effects on livelihoods, especially among the most vulnerable populations. Health system policies will also be key to ensure access to essential nutrition services for protecting the health of vulnerable groups, and the food and agricultural workforce, as well as to ensure food safety.
- ➔ Environmental, transportation and energy policies will be absolutely necessary to enhance the positive outcomes of the repurposing support efforts in the realms of efficiency, equality, nutrition, health, climate mitigation and the environment.
- ➔ The success of repurposing food and agricultural policy will also be influenced by the political and social context, governance, (im)balances of power, differences in interests, ideas and influence of stakeholders, market power concentration, and the governance mechanisms and regulatory frameworks in place to facilitate the reform process and prevent and manage conflicts.
- ➔ Given the diversity of each country’s political context, the repurposing support efforts will need strong institutions on a local, national and global level, as well as engaging and incentivizing stakeholders from the public sector, the private sector and international organizations. The engagement of SMEs and civil society groups will be key to balancing out unequal powers within agrifood systems.
- ➔ Monitoring and evaluation mechanisms will be particularly important to ensure accountability and to identify areas of improvement in repurposing support, provided they can be supported through data development and maintenance as well as model-based scrutiny.
Deciding on what food and agricultural policy support should be reformed and how, in order to improve the affordability of healthy diets, requires careful examination of the potential effects and trade-offs implied by different policy mixes. This is key to inform policy decisions and strike a proper balance across all dimensions of sustainable development.
Governments may find that repurposing some of their support to food and agriculture can be a means to: i) improve agrifood systems efficiency, with fairness and inclusiveness for all agrifood systems actors that want to benefit from such reconfigured policies (equity); ii) increase the availability and reduce the cost of nutritious foods, thus increasing people’s affordability and access to healthy diets; and iii) provide strong incentives to reduce GHG emissions, adapt to climate change and manage natural resources sustainably under planetary boundaries.
To take advantage of these possibilities, though, a systems approach will be needed. In other words, other policies and incentives, some of which may pertain to other systems, will have to coherently complement repurposing support efforts in food and agriculture. Altogether, the policy mix will succeed depending on country context where food insecurity and malnutrition can be the result of several drivers (i.e. conflict, climate extremes and variability and economic swings), structural characteristics (e.g. income status, degree of inequality, natural resource endowments, net trade position, and so forth) and political economy considerations and feasibility.
4.1 What are the potential impacts of reallocating food and agricultural policy support differently to reduce the cost of nutritious foods?
Recent studies show that reallocating public support to food and agriculture differently can lead to improved outcomes, but with potential trade-offs in several important domains for sustainable development that need to be carefully understood.222 Due to the issues at stake, most of these studies have relied on model-based simulations and because most public support is given to farmers, they focus mostly on agricultural support rather than food and agricultural support.
Repurposing policy support implies an understanding of what would happen if, for example, this support were allocated differently, which would trigger direct but also indirect economy-wide effects. For example, a reallocation of public expenditure into investments that boost productivity in agriculture sectors will have effects on these sectors’ production directly. Yet, it will also have indirect impacts through the productive linkages between these sectors and other sectors of the economy, not least the food industry. Some agriculture sectors also trade internationally. Farmers in sectors promoted by such investments will also increase their demand for agricultural inputs as well as their final demand for food since they are also consumers. These interlinkages justify analysing repurposing food and agricultural support options using simulations from computable general equilibrium (CGE) models.223
Most existing studies that rely on such models have also focused on reforming or repurposing agricultural support to achieve better climate-related and environmental outcomes. In these studies, global model-based simulations not only point to the link between agricultural support and GHG emissions, but also find that repurposing such support can lead to reductions in GHG emissions. However, these global model-based analyses also highlight important trade-offs; for example, in terms of agriculture production, farm income and economic efficiency. Although these studies point to several important insights on the affordability of healthy diets,4,224,225,226 this issue has not been at the core of their analyses.
Eliminating agricultural support is not a feasible option
Global model-based analyses warn that removing all agricultural support alone is not an option.1,227 Such a drastic scenario could lead to some reductions in GHG emissions from agriculture, and efficiency and net-global economic gains, but it would come at a high socioeconomic and human cost to society. Trade-offs may include significant reductions in crop production, livestock farming production and farm employment.
One of the studies227 analysed the ensuing impact of globally removing support on consumption, diet-related mortality and overweight and obesity by 2030. The changes in consumption followed the changes in production but were also mediated by changes in trade and commodity prices. The per capita availability of fruits, vegetables and other horticultural products for consumption decreased in all regions, as did total energy intake. Associated with these changes was a projected net increase in diet-related mortality, most of which was associated with the reductions in availability of fruits and vegetables for consumption but was slightly compensated for by reductions in overweight and obesity. Further, the same study points to the resulting increases in mortality which would negatively affect the labour supply and economic welfare.
Allocating agricultural support differently is an option
Another key finding from recent studies is that changing the composition of agricultural support with repurposing can ensure beneficial outcomes while minimizing trade-offs. For example, one study examines4 the model-based scenario where all countries concertedly repurpose current coupled subsidies into conditional payments to farmers who are achieving higher productivity and adopting lower emission-intensity technologies, while supplementing this with additional government support for R&D in such technologies and infrastructure improvements. Not only would such a scenario significantly help reduce GHG emissions from both agricultural production and land-use change, but it would also help increase yields globally, contribute to reducing food prices, improve farm incomes in developing countries, reduce poverty and hunger, and incidentally, reduce the cost of a healthy diet for poor people.
Another study,227 using a similar modelling framework, found that on a global scale, several reform options could lead to reductions in GHGs and improvements in population health without reductions in economic welfare. Those reform options include a repurposing of up to half of those agricultural subsidies that support the production of foods with beneficial health and environmental characteristics, including fruits, vegetables and other horticultural products.
These findings show that smart repurposing of current agricultural support has the potential to contribute to the environmental sustainability of agriculture, while also contributing (moderately) to poverty reduction, food security and better nutrition. The key to these outcomes is ensuring that the reorientation of support leads to significant efficiency improvements – both in terms of higher yields and lower emission intensities. It is also clear that reorienting agricultural incentives in this way will not address all agrifood system challenges in full.
Recent studies that also rely on modelling find that repurposing domestic agricultural subsidies – particularly those that are coupled to production as defined in Chapter 3 – to pursue better nutrition, health and environmental outcomes, can be beneficial to transitions towards healthy diets that include sustainability considerations.227,228
For example, positive gains could be made in terms of human health through increased consumption of nutritious foods, including fruits and vegetables, nuts, seeds and pulses.228 Repurposing half or all subsidies to nutritious foods is found to lead to hundreds of thousands of fewer diet-related deaths and reductions in GHG emissions. Modelling also shows that the resulting shifts in resource demand for water, land, nitrogen and phosphorus are generally modest, and changes in management practices may arguably be more effective in moderating water and land use (e.g. subsidy reforms include incentives for adopting sustainable management practices, in addition to encouraging changes in the mix of production). These studies focus on subsidies, though, thus leaving out other instruments of policy support.
Bridging current knowledge gaps in understanding repurposing with a lens on healthy diets
While the global model-based analyses described above have provided important policy insights for repurposing support efforts, they fall short in helping us more thoroughly understand what repurposing scenarios mean if they were to include lowering the cost of nutritious foods and increasing the affordability of healthy diets for all as a key policy objective. Bridging these knowledge gaps is critical to inform decision-making in repurposing support to ensure it contributes to ending hunger, food insecurity and all forms of malnutrition with synergies for other development goals. It is also important for governments to understand ways in which in times of economic sluggishness, as is the case nowadays, public resources can be spent wisely with the highest cost-effectiveness possible to improve people’s lives while respecting the planet.
The remainder of this section presents new analysis of model-based scenarios of repurposed food and agricultural policy support specially developed for this report, mostly at the global level, but adding country examples. It tackles a number of key questions: What could be the impacts of allocating current public support to food and agriculture differently on both food production and consumption patterns, in ways that affect the cost of nutritious foods (relative to other foods and people’s incomes) and thus change people’s affordability of healthy diets? Are results from repurposing different for specific groups of countries? What trade-offs could arise between multiple sustainable development objectives and mixes of policies, and what alternative policy mixes exist to avoid them?
Repurposing may not be feasible for some countries, especially for LICs but also for some LMICs that are barely spending on food and agriculture while still undergoing agricultural transformation. For these countries, the question then becomes: “how far” could repurposing take them? While there may be little potential for repurposing (or reallocating) resources in these countries, there is potential to reform policies and to use these resources more efficiently and effectively. How can these countries ensure that agricultural transformation and increasing access to healthy diets are synergic through policy support?
Scenarios of repurposing support to lower the cost and improve the affordability of a healthy diet, sustainably and inclusively
Some of the studies discussed above used the Modelling International Relations under Applied General Equilibrium (MIRAGRODEP) model to gauge the potential impacts of eliminating and reallocating agricultural support differently. This is a global, recursive-dynamic CGE model with multiregions and multisectors, which links the agricultural sector to the broader economy and captures economy-wide effects from policy changes. It was initially developed to analyse the impacts of agricultural policies on GHG emissions229 and was expanded to analyse impacts on nature, climate, food availability for consumption and nutrition.1,4,226,227
The MIRAGRODEP model has been further expanded for this report to analyse potential impacts of repurposing food and agricultural policies to specifically reduce the cost and increase the affordability of a healthy diet. It also relies on the updated agricultural producer support data presented in Chapter 3. As in the case of any economic model, the results of simulating policy changes using MIRAGRODEP are highly dependent on the underlying assumptions and the data used. For this reason, the analysis of scenarios presented in this section focuses on the direction and the relative magnitude of estimated effects, rather than on the actual magnitude. The results are best interpreted as indicative of the likely effects. A more detailed description of how this model has been expanded for this report and on the data is found in the background paper of The State of Food Security and Nutrition in the World 2022,230 and more technical details (including the model’s mathematical statement) are found in Glauber and Laborde (forthcoming).230
The analysis takes as a reference a baseline scenario from 2017 to 2030, which is aligned with the United Nations’ demographic projections231 and updated economic growth estimates from the IMF.232 Summary statistics for baseline projections are presented in Glauber and Laborde (forthcoming).230 In essence, this is a business-as-usual scenario because there are no shifts in the way governments from all over the world are supporting food and agriculture.
Policy instruments of the baseline are changed to generate five additional scenarios (see Table 7). Price incentives through border measures and market price controls on the one hand, and fiscal subsidies to producers on the other, are respectively eliminated in the second and third of these scenarios. In the fourth to the sixth, policy support is reallocated in different ways with the purpose of reducing the cost and increasing the affordability of a healthy diet. All five policy scenarios assume that all countries of the world simultaneously implement the same policy change – even if all countries do not have the same development levels, economic structures, policy systems and priorities, and, importantly, do not have the same level and structure of policy support.
Following definitions in Glauber and Laborde (forthcoming),230 key food security, nutrition, equity and climate variables for which results are presented include:
- Affordability of a healthy diet – This measures the percent of the population that can afford a healthy diet as defined in this report (see Section 2.3 and Annex 3).
- Income gap in the affordability of a healthy diet – This measures the average gap between the cost of a healthy diet and the food expenditures of the population that could not afford it.
- Prevalence of undernourishment (PoU) – This measures the percent of the population that is undernourished (see Section 2.1 and Annex 1B).
- Population in extreme poverty (less than USD 1.90 per day) – This measures the percent of the population living in extreme poverty.
- Farm income – This measures the real value added of the farm sector.
- Agricultural production (volume) – This measures agricultural production measured on a volume basis.
- Total GHG emissions from agriculture including land-use changes (cumulated during the period 2025–2030) – This measures the total value, both production and land emisssions cumulated over five years 2025–2030.ab
Results for the five policy scenarios are reported as percentage point change from the baseline scenario in 2030 for the affordability of a healthy diet, the income gap in the affordability of a healthy diet, the PoU and the population in extreme poverty. The results are reported as percentage change from the baseline scenario in 2030 for farm income, agricultural production and total GHG emissions from agriculture including land-use changes.
Reinforcing the case for repurposing support
Results from the second and third scenarios whereby, respectively, border support and market price control or fiscal subsidies to producers are removed from the baseline scenario help reinforce the case that eliminating such support altogether would not be a feasible option.
When all border support and market price control measures affecting agricultural products – both positively and negatively – are removed globally, agricultural imports increase, and this lowers prices for consumers and producers in food-importing countries, although food prices go up for food exporting countries whose products are in higher demand. In turn, an overall reduction in agricultural prices help reduce undernourishment, increase the affordability of a healthy diet and shrink the income gap towards affording a healthy diet, particularly in LMICs (Table A6.2 in Annex 6).
Total GHG emissions from agriculture fall as well, but these benefits are not free of trade-offs. Global extreme poverty essentially does not change – and actually increases in LMICs. There is a clear reduction in global agricultural production in all but HICs, and farm income falls in MICs and LICs where border support is more typically provided than fiscal subsidies (Table A6.2 in Annex 6). The reduction in total GHG emissions in agriculture results from less agricultural production in MICs and LICs.
Trade-offs are even more apparent when all fiscal subsidies given to producers individually – mostly in HICs and UMICs – are removed, keeping all other support including border measures and market price controls in place (Table A6.3 in Annex 6). Effects are particularly adverse in terms of farm income and agricultural production particularly in HICs, although global food security and nutrition may also deteriorate. The drop in global agricultural production pushes agricultural prices up, which in the context of LICs is somewhat favourable to agricultural production, farm income and poverty reduction. Even so, poverty increases globally, and both the decline in farm income in some LMICs in Asia and the aforementioned increased prices push up the PoU and the cost of nutritious foods, thus leaving a healthy diet less affordable, particularly in LMICs. There is a reduction in GHG emissions from agriculture given the decrease in global agricultural production, but the trade-offs in food security, nutrition and equity reinforce the case that eliminating fiscal subsidies to producers is not a feasible option.
On the basis of these results, policymakers may see in repurposing support to food and agriculture a better option than eliminating such support. Policymakers will need to consider the potential options to repurpose policy support to food and agriculture for improving affordability of healthy diets. This includes the consideration of different scenarios that can inform decisions for policy reforms.
These scenarios simulate the reallocation of current budgets supporting agricultural producers using different policy instruments. This is done for all countries from all geographical regions, in order to reduce the cost and increase the affordability of a healthy diet (see Table 7). This reallocation is implemented linearly between 2023 and 2028, and impacts are examined for 2030, a year by which sufficient time will have elapsed for policy changes to have been implemented and for markets and investments to have adjusted.
TABLE 7Business-as-usual, elimination and repurposing of support to food and agriculture scenario
The policy instruments under consideration are price incentives through border measures and market price controls, fiscal subsidies given to producers individually, and fiscal subsidies to consumers (as defined in Section 3.1). Because the policy objective is to reduce the cost and increase the affordability of a healthy diet – sustainably and inclusively, the repurposing scenarios are such that food products whose current consumption levels are low relative to recommended dietary levels are subsidized at a higher rate than all other food products. Food products are classified in terms of such suboptimal intake, and the targeted level of support is defined based on how this deficiency earmarks them as “high-priority”, “medium-priority” or “low-priority” foods. High-priority foods include fruits and vegetables, fisheries and dairy products in most regions (see Box 13).
BOX 13Classification of food products as low, medium and high priority for increasing their availability and consumption to meet recommended dietary levels
Classifying food products for their contribution to a healthy diet is critical in the scenario design. At the same time, there are no unique and objective criteria to define such classification. Moreover, regional specificities, not only in terms of production practices, but also in relation to dietary habits and cultural preferences, can also impact the classification.
In the three repurposing scenarios analysed in this section, agricultural products are classified based on the level of current per capita consumption (adjusting for food loss) in each country/region, relative to the recommended levels for that country/region, as defined by the FBDGs used for the computation of the cost of a healthy diet (see Section 2.3 and Annex 2E). A product is characterized as a “high-priority” food if its current consumption level was on average less than 80 percent of the recommended level to adhere to a least cost healthy diet. A product is characterized as a “medium-priority” food if its current per capita consumption in the country/region falls between 80 and 120 percent of the recommended level. A product is characterized as a “low-priority” food if its current per capita consumption in the country/region exceeds 120 percent of the recommended level.
Figure A shows the percent of regions for which a food group is classified as “high priority”, “medium priority” or “low priority”. Vegetables and fruits are identified in the first two categories in over 95 percent of the regions analysed. Dairy products and fishery products are also identified as high- and medium-priority food groups. “Low-priority” foods include vegetable oils in some regions. Grains such as rice, wheat and maize are classified most often as “medium-priority” foods.
FIGURE A Classification of food groups based on per capita consumption relative to regional dietary guidelines
Table A presents the targeted support changes for each of the repurposing scenarios, according to whether foods are classified as “high priority”, “medium priority” or “low priority”.
Table A Targeted support changes in repurposing scenarios for the three different priority food groups
In addition to the seven indicators introduced earlier, six more indicators are added to examine the impacts of repurposing on the cost and affordability of a healthy diet and per capita consumption of broad food groups adjusted for food loss and waste (see Glauber and Laborde [forthcoming]230 for definitions) – all expressed as a percentage change relative to the baseline in 2030:
- Cost of actual diet – which measures the cost of the average diet based on the average national food expenditure that is currently observed in the data – and is thus reflected in the baseline scenario
- Cost of a healthy diet
- Per capita consumption of dairy products (i.e. raw milk, processed milk, cheese)
- Per capita consumption of animal fats and vegetable oils
- Per capita consumption of sugar and sweeteners
- Per capita consumption of fruits and vegetables
Per capita consumption focuses on the food groups whose level of current per capita consumption in each country/region does not yet match the recommended levels for that country/region, as defined by the FBDGs used for the computation of the cost of a healthy diet (see Section 2.3, Box 13 and Annex 2E). In the policy scenarios, any increase in the production and availability of these food groups as a result of a policy change will increase their consumption so that markets clear.ac The assumption is that consumers will be readily available to fully absorb the increased food availability. Of course, for this to occur in practice, other policies that target consumer behaviour will simultaneously be needed, as further explained in Section 4.2.
Repurposing price incentives through border measures and market price controls in support of healthy diets
Despite a decline over time, particularly in HICs, a large share of public support to individual producers is still provided through trade measures that distort prices (see Chapter 3). Border measures and market price controls for some products result in incentives that can directly affect both producers and consumers of those products. Changing them can also have impacts on fiscal revenues (e.g. lost tariff revenue when they are reduced/removed).
In the fourth scenario, border measures and market price controls are eliminated or reduced for products whose current consumption levels in each region are low relative to recommended levels for that region. All agricultural producers are affected, including those of crops, livestock, fisheries and aquaculture products. Targeted foods are designated as “high priority” if their current consumption falls below 80 percent of recommended consumption levels for that region. These “high-priority” foods received a 100 percent reduction in border support and market price controls in this scenario, “medium-priority” foods received a 50 percent reduction, whereas “low-priority” foods, none (Box 13).
Removing or reducing border support and market price controls for commodities that are priorities for a healthy diet reduces their prices, particularly in markets with high border protection. This presumably promotes the consumption of these commodities in importing countries; at the same time, though, exporting countries face higher domestic prices due to increased international demand (Table 8). As a result, the percent of the global population for which a healthy diet is affordable increases (by 0.64 percentage point in 2030 compared with the baseline), while the cost of a healthy diet falls relatively more than that of the average diet (by 1.7 vs 0.4 percent, respectively) (Table 9).ad To accommodate the larger availability of fruits and vegetables, dairy products and in particular fats and oils,ae consumption for these food groups presumably increases. The simulated repurposing marginally lowers the percent of the global population that is undernourished across all country income groups and geographical regions.
TABLE 8Impact of repurposing border measures to support healthy diets, 2030 (change with respect to the baseline)
TABLE 9Impact of repurposing border measures to support healthy diets on diet cost and per capita consumption, 2030 (percentage change with respect to the baseline)
The move towards a less costly and more affordable healthy diet is accompanied by a decline in global agricultural production that, in turn, is reflected in lower GHG emissions in agriculture (Table 8). GHG emissions fall in all income groups, except for the HICs (where agricultural production is found to increase). Other effects include a small increase of global farm income (up 0.03 percent), although for LICs and LMICs, where border measures and market price controls account for a high share of total food and agricultural support, the farm income effects are negative and greater than the global average change. The impact on extreme poverty is minimal at the global level; small increases in LMICs are offset by declines in the other income groups.
Repurposing fiscal subsidies to producers in support of healthy diets
The fifth scenario redistributes baseline fiscal subsidies to individual producers (Table 7). The latter refers to farmers in crop and livestock farming; producers in fisheries and aquaculture are not included due to data limitations, which may affect the results given the importance that these sectors’ production has for healthy diets (recall Box 9). Because the policy objective is to support healthy diets, producers of “high-priority” foods are subsidized at a higher rate than producers of all other food products (as defined in Box 13). Given this policy objective, a scenario of repurposing fiscal subsidies to producers that are decoupled from production is not being considered, even if such subsidies could potentially have some benefits on the production and availability of nutritious foods.
Most of the direct impacts of redistributing fiscal subsidies to producers on farm income and production are expected to be felt in HICs and UMICs who provide most fiscal subsidies. When this redistribution is bias towards “high-priority” foods, farm income falls globally (by 0.94 percent in 2030 compared with the baseline) whereas, in contrast, agricultural production increases mildly (by 0.27 percent) (Table 10).
TABLE 10Impact of repurposing fiscal subsidies to producers to support healthy diets, 2030 (change with respect to the baseline)
The overall increase in the production of “high-priority” foods reduces their prices, benefiting nutritious food consumption and resulting in an increase of the global population who can afford a healthy diet (by 0.81 percentage point in 2030). This is unambiguously the case for all country income groups and geographical regions (Table 10). The cost of a healthy diet falls more than the cost of current diets because fiscal subsidies to producers target “high-priority” foods – which reflects how shifting the producer support instrument affects both the farm gate price, producer costs and consumer prices (Table 11). At the given increased production and lower price, per capita consumption of fruits and vegetables increases globally (by 1.5 percent) and across all country income groups and regions.
TABLE 11Impact of repurposing fiscal subsidies to producers to support healthy diets on diet cost and per capita consumption, 2030 (percentage change with respect to the baseline)
The simulated repurposing of fiscal subsidies to producers increases the affordability of a healthy diet more than the simulated repurposing of border measures and market price controls (compare Table 10 and Table 8). It also reduces the percent of the global population in extreme poverty and experiencing undernourishment. However, an important trade-off – not seen in the previous repurposing scenario – is that total GHG emissions from agriculture increase (by 1.5 percent) reflecting the higher agricultural production, including high-protein-rich foods such as dairy products whose consumption increases to meet dietary levels particularly in LMICs (see Table 10).af
Annex 6 shows results from a variant of this scenario, which aims to distribute fiscal subsidies to producers more fairly, so it implicitly removes the current bias towards high-priority foods.ag The results are similar to those presented for the fifth scenario in terms of direction; in terms of magnitude, the fact that there is no targeting for “high-priority” foods means the affordability of a healthy diet increases slightly less. Also, farm incomes fall more, agricultural production increases more, and agriculture emits fewer GHG emissions because this scenario is not primarily designed to increase the production and availability of food groups (e.g. dairy products) to meet dietary guidelines (compare Table 10 with Table A6.4 in Annex 6).
Shifting fiscal subsidies from producers to consumers in support of healthy diets
The last repurposing scenario examines what would happen if all countries from all regions converted fiscal subsidies to producers into fiscal subsidies to consumers of “high-priority” foods (see Table 7). In this new scenario the fiscal subsidies initially allocated to producers no longer stay within the agriculture sector, although they remain within the agrifood system.
With fiscal subsidies going to consumers albeit still targeting “high-priority” foods, the cost of a healthy diet falls more notably than in the two previous repurposing scenarios, both in absolute terms (by 3.34 percent in 2030 compared with the baseline) and relative to the average diet (Table 13). The percent of the population that can afford a healthy diet increases (by almost 0.8 percentage point) but slightly less so than in the fiscal subsidies to producer’s scenario due to the income effect, as further explained below (Table 12). Per capita consumption levels of dairy products, fats and oils, and fruits and vegetables are all estimated to rise at the global level, although there are regional differences due to regional diversities in determining “high-priority” foods (Box 13). The estimated impacts are largest for per capita consumption of fats and oils, particularly in MICs and across regions in Asia.
TABLE 12Impact of repurposing fiscal subsidies from producers to consumers to support healthy diets, 2030 (change with respect to the baseline)
TABLE 13Impact of repurposing fiscal subsidies from producers to consumers to support healthy diets on diet cost and per capita consumption, 2030 (percentage change with respect to the baseline)
Important positive synergies in this scenario include a reduction in extreme poverty and undernourishment levels, due in part to increased farm income in LICs. Moreover, world GHG emissions fall due to a reduction in agricultural production. In contrast, this scenario is found to hit producers hard in the absence of their subsidies. Globally, farm income and agricultural production fall (respectively, by 3.7 and 0.2 percent in 2030 relative to the baseline) (Table 12). Farm income exhibits the largest relative drop in HICs (down 13.8 percent), but it also falls in UMICs and LMICs. Let us recall that most fiscal subsidies are provided in HICs and UMICs, so most of the direct impacts of shifting them from producers to consumers are expected to be felt in countries of those income groups.
LICs are a particular case in this scenario as they gain through increased demand for the nutritious foods they produce from other countries where consumers are now presumably eating more healthily. Thus, farm income and agricultural production increase in these countries (Table 12). However, because fiscal subsidies are relatively small in LICs, consumer subsidies are also negligible to fully offset the rise in agricultural prices resulting from increased demand for their food from the rest of the world. Thus, the cost of current and a healthy diet is estimated to rise in LICs (by 0.44 and 0.20 percent, respectively), particularly in Africa. Nonetheless, a healthy diet is more affordable in these countries due to an increase in consumers’ incomes – but, in practice, this may not be the case for poor households with low or no income.
Compared with the previous scenario where fiscal subsidies stay within agriculture, shifting fiscal subsidies from producers to consumers avoids the trade-off in terms of GHG emissions in agriculture but triggers trade-offs in terms of farm income and agricultural production in HICs, UMICs and LMICs and in terms of the cost of diets in LICs, particularly in Africa. Also, while in the previous scenario per capita consumption increased only for fruits and vegetables, globally, in this last repurposing scenario changes in relative prices are such that the per capita consumption of dairy products and fats and oils also goes up; for fruits and vegetables there continues to be an increase, but it is significantly lower compared with the previous scenario.ah
Repurposing and economic recovery
The repurposing of support to food and agriculture must also consider the possibility that, while healthy diets become more affordable to all, sustainably and equitably, economies can also achieve a sustained economic recovery. This is particularly important in the current world economic context.
It is not obvious that targeting support to “high-priority” foods – as defined and simulated above – will limit or spur GDP growth. In fact, targeting support to “high-priority” foods for a healthy diet could imply specialization in the production of commodities for which some countries would have neither a comparative nor a competitive advantage. The resulting evolution of world prices and the trade position on specific commodities could lead to GDP losses in some countries/regions. In the end, we are confronted with an empirical question.
Reducing border measures and market price support for agricultural products whose consumption is low relative to dietary guidelines increases GDP unambiguously across income groups (Figure 23) and regions (not shown here). Gains are largest in LMICs and LICs where border measure support is often highly distortive (see Section 3.1).
FIGURE 23Impact of changes on GDP in the repurposing scenarios, 2030 (percentage change with respect to the baseline)
Repurposing fiscal subsidies to producers towards commodities where consumption is low relative to recommended dietary levels results in efficiency losses for UMICs – particularly in Asia where large levels of support are moved to less efficient production outcomes. As a result, GDP falls in this region. In LICs, efficiency loss is minimal because there is little fiscal support to repurpose; however, those countries see GDP gains due to higher agricultural prices and increased exports.
Shifting fiscal subsidies from producers to consumers of agricultural products whose consumption is low relative to nutritional guidelines tends to benefit most geographical regions – and Latin America and the Caribbean in particular (not shown here). Across income groups, the exception is LICs (particularly in Africa, which is not shown here) which lose marginally because most of these countries are net food-importing countries facing higher prices.
In sum, repurposing support that targets the higher priority foods for a healthy diet would support economic recovery globally, provided this is realized through the reduction of border measures and market price controls or the shifting of fiscal subsidies from producers to consumers. But the results differ by country income group and geographical region.
The case for general services support in LICs
In addition to supporting food and agriculture differently through shifts in price incentives via border measures and market price controls as well as fiscal subsidies under the same budgets, governments may also consider reallocating part of their budgets to increase GSS, which include public expenditure (or budget transfers) for the provision of public or collective goods (see Chapter 3). In principle, this type of public expenditure could affect productivity in agriculture more directly, of course, provided that governments ensure it has high value and quality at subnational levels where it is most needed, which is often contingent on resource transfers from central to provincial, district or municipal levels and relevant capacities to carry this out.
GSS has not been included in the global scenarios analysed above for several reasons, an important one being a lack of unambiguous evidence of the extent to which different types of these expenditures can actually affect productivity across countries/regions. The effect of GSS on productivity will be different across individual countries, whereas in the global scenarios several countries are aggregated together in a single region, which makes any GSS-related scenario and its impact on productivity more difficult to interpret. In this regard, country-specific analysis may be more meaningful.
General government services will not benefit producers all the time at country level, because, inter alia, a large number of farmers already benefit from their provision; they only affect some aspects of the food value chain; they are earmarked to programmes with design and implementation problems; or because of political economy considerations. In HICs, which have generally reached the “frontier” on several general government services expenditures, adding new lab facilities or sanitary inspectors or new rural infrastructure, for example, may not result in significant productivity gains compared to less advanced economies. On the contrary, GSS expenditures could make a difference in LICs that are pursuing agricultural transformation but still exhibit a deficit of public services and productivity gaps.
Studies that rely on country-specific CGE models for a LIC like Uganda,233 or even a MIC like Mexico,223 have analysed the impacts of a modest public investment to increase the provision of GSS (e.g. improving rural roads, irrigation systems, storage infrastructure, etc.), which is targeted at agricultural sectors one at a time. Results include total factor productivity gains over time and private capital accumulation, resulting in increases in GDP, agrifood output, private consumption and rural poverty reduction. However, these studies recommend that such public investments should prioritize some sectors over others to reap the highest economic and social benefits.
The study of Mexico, in particular, calls for prioritizing public investments in agriculture also taking nutrition into consideration.223 A key recommendation is to invest in the sugar cane sector as it provides the highest output growth, welfare and poverty reduction gains compared to other agricultural sectors. Instead of using sugar cane for producing sugar-sweetened beverages and confectionery for final consumption (which the study recommends taxing), the recommendation of the study is to take advantage of the sector potential as a major feedstock for biofuel.
The idea that GSS expenditures should be prioritized to make the most economic and social gains is key for countries at very low levels of public support for agriculture but that still exhibit significant productivity gaps. How to optimize the low public budgets allocated to agriculture in LICs becomes of upmost importance to ensure that these countries’ agricultural transformation objectives are well aligned with the objective of reducing the cost and increasing the affordability of healthy diets. It is not so obvious that these multiple objectives can be met without trade-offs, unless budgets for agriculture are repurposed very carefully to ensure they can benefit all actors collectively, including women and youth.
A study for Ethiopia confirms it is possible to achieve policy coherence across multiple objectives if the public budget allocated for agriculture is repurposed optimally. Optimality refers to reaching a compromise in policymaking to reallocate the same budget in a unique way whereby it is not possible to improve in at least one policy objective without worsening any of the other policy objectives (Box 14).
BOX 14Optimizing public budgets to align agricultural transformation and healthy diets’ affordability objectives: evidence for Ethiopia
FAO has developed an innovative policy optimization tool to help policymakers address their most common problem: i.e. to seek multiple objectives that can be conflicting under a budget constraint. Sánchez and Cicowiez (2022)234 proposed the approach and applied it with data for Ethiopia. They show how inclusive agricultural transformation objectives can be simultaneously pursued while minimizing trade-offs if a compromise is reached through optimal policies.* The tool originally considered three policy objectives: maximizing agrifood GDP, maximizing off-farm rural employment and minimizing rural poverty. Sánchez and Cicowiez (forthcoming)235 have expanded the tool to include a fourth policy objective of upmost importance: minimizing the cost of the nutritious foods that form a least cost healthy diet in the context of Ethiopia, as defined in this report (see Section 2.3 and Annex 2E).
It is thus now possible to understand what the current budget allocated to all fiscal transfers to producers (through subsidies and GSS) would look like relative to an optimal budget that would allow countries to move towards the four objectives. The budget is much disaggregated as it considers the type of expenditure and the commodities whose production this expenditure is supposed to promote. In order to facilitate the presentation of results, two graphs instead of only one are presented.**
Two repurposing scenarios are compared with a base scenario. The latter starts in fiscal year 2015/2016 and runs through a future year (e.g. 2025). It is a business-as-usual scenario as it shows what the budget will look like by 2025 if its composition remains unchanged. The two repurposing scenarios pursue the inclusive agricultural transformation objectives (i.e. maximizing agrifood GDP, maximizing off-farm rural employment and minimizing rural poverty) between 2022 and 2025. Only in one of these scenarios is the objective of minimizing the cost of the nutritious foods that form a least cost healthy diet (i.e. healthy diets’ affordability objective) also pursued.
Figure A shows that improving on all of these objectives will require prioritizing the budget differently. When only inclusive agricultural transformation objectives are pursued, for example, extension services in both cereals and livestock farming, as well as fertilizers – though to a lower extent – would receive a relatively larger budget allocation at the cost of other budget lines. When the healthy diets’ affordability objective is added to the policymaking problem, it becomes optimal to step up expenditures in irrigation, for example, notably because there will be more production and consumption of nutritious foods, such as fruits and vegetables, which are relatively more water intensive. In this case, irrigation expenditure can be targeted to specific commodities (i.e. nutritious ones), whereas investing in rural roads will have a positive impact on all commodities.
Figure A Ethiopia’s domestic budget allocation to agriculture by 2025: projection of current budget vs scenarios of optimal budget reallocations
Because the reallocation of the budget is optimal, Figure B shows there is improvement on all the objectives (relative to the base), indicating that the initial budget allocation is inefficient; however, there are some trade-offs to consider. When the affordability of a healthy diet’s objective is added to the policymaking problem, the cost of a healthy diet falls the most, and 2 962 234 more people (vs 2 346 193 when the fourth objective is not added) can now afford a healthy diet. This is the result of optimizing the budget differently to support the production of the nutritious foods making up a healthy diet. However, this is at the cost of not improving more on the inclusive agricultural transformation objectives, because the budget is now biased towards supporting the production of the nutritious foods. As a result, the opportunity to additionally create 25 950 jobs and get 23 429 people out of poverty is foregone.
Figure B Indicators reflecting improvement in development objectives as a result of an optimal budget allocation to agriculture in Ethiopia, 2025 (percent deviation from base scenario)
Pursuing inclusive agricultural transformation objectives alone is found to be quite favourable to reducing the cost of a healthy diet. Policymakers in LICs like Ethiopia may consider it preferable to find a compromise along the lines of this scenario should their objectives also include economic recovery (for which output growth and employment creation with poverty reduction are key), while still ensuring that the repurposing of the budget supports healthy diets. Of course, the optimal policy mix will keep on changing over time as these countries develop.
- * The tool relies on a multicriteria decision-making technique whereby equations of a dynamic CGE model are constraints to a policy optimization problem. ** The budget is disaggregated as follows: R&D by commodity, extension services by commodity, improved seeds by commodity, fertilizer, irrigation by commodity, mechanization by commodity, rural roads, rural electrification and cash transfers. This disaggregation draws from the public expenditure in food and agriculture methodology of FAO’s Monitoring and Analysing Food and Agricultural Policies (MAFAP) programme. For more details on data and methodology, see www.fao.org/in-action/mafap/data.
Policy discussion and implications
The scenario analysis points to potential options by which all countries in the world can repurpose existing public support to food and agriculture to increase the affordability of a healthy diet, a necessary – albeit insufficient – condition for healthy diets to be consumed. Undernourishment and extreme poverty are generally found to decrease (sometimes very mildly) at the global level when the affordability of healthy diets increases as a result of the repurposing support options.
An important finding is that, among the different policy instruments available to provide public support, repurposing fiscal subsidies to increase the availability of “priority foods” for healthy diets globally may have the largest impacts on the affordability of healthy diets, particularly if it targets the consumer. This option, however, also shows some potential synergies but also trade-offs in the realms of GHG emissions, farm income, total agricultural output and global economic recovery.
Repurposing support through border measures and market price controls to incentivize production, availability and consumption of “high-priority” foods for healthy diets, on the other hand, is found to be most effective amongst the options for reducing undernourishment in LICs, simply because these countries have very little fiscal support to repurpose.
Repurposing support towards healthy diets by targeting “high-priority” foods, whether through border measures and market price controls or fiscal subsidies, introduces an element of equality in supporting agricultural products compared with the current support situation. However, it could also introduce biases if some farmers – especially small-scale ones as well as women – who may be willing to take advantage of the support, ultimately face resource constraints and are thus not in a position to specialize in the production of “high-priority” foods for healthy diets.
The most important trade-offs are observed when fiscal subsidies are repurposed, particularly in terms of lower farm income across country income groups (and more notably so in HICs) and agricultural production. These trade-offs are more pronounced when fiscal subsidies are shifted from producers to consumers. The trade-off between increasing the affordability of healthy diets and GHG emissions in agriculture (and even economic recovery) is seen globally when fiscal subsidies are repurposed but continue to be allocated to producers within agriculture, particularly in LICs and MICs. On the other hand, there are far fewer trade-offs when repurposing support only makes its way through border measures and market price controls.
Of course, it is important to understand the limitations of model-based scenarios. The scenarios discussed up until now do not consider the fact that some production technologies generate more or less GHG emissions (or environmental damage) than others. For example, changes in the pattern of policy support in the scenarios, with more or fewer fertilizers for instance, could change – at the margins – the emission intensity of some products. But the scenarios do not explicitly consider a shift towards technologies that are relatively lower in emission intensity (e.g. new feed technologies for cattle, improved bio-control approaches for pest managements, new crop rotation practices for improving soil health and reduce fertilizer uses, and so forth). In practice, repurposing support need not be at the cost of higher GHG emissions if, at the same time, low-emission intensity technologies are adopted to produce the nutritious foods, and if current overproduction and overconsumption of foods, including meat and dairy products, in HICs and UMICs are reduced in line with healthy eating guidelines. Another issue is the broad nature of the food categories for the high-priority foods used in the scenarios because, for example, the extent to which increased consumption of fats and oils contributes to healthy diets is not clear in all contexts, at least not without more specific data on the types of fats and oils.
The results of the scenarios also suggest that providing fiscal subsidies to consumers tends to generate more diversified healthy food consumption patterns with GHG emission reduction, compared with providing fiscal subsidies to producers, even if both policies target the same nutritious foods. This is expected because reducing the cost and increasing the affordability of healthy diets is a consumer-side objective, rather than a producer-side objective. But then, again, the policy of subsidizing consumers of “high-priority” foods for healthy diets does not come free of trade-offs in farm income, agricultural production and even the cost of a healthy diet in the case of LICs, which policymakers may like to avoid in practice.
In the case of LICs, for example, the cost of healthy and current diets is found to increase marginally when fiscal subsidies are shifted from producers to consumers for two reasons: i) increased import demand for LICs’ food in the rest of the world raises food prices, and ii) there are limited fiscal subsidies in LICs to reallocate for meaningfully incentivizing the demand for nutritious foods. This is an important trade-off to consider, particularly in the context of Africa, where healthy diets are found to become more affordable generally when consumers’ incomes increase, because reducing the cost of healthy diets presents more challenges in these countries. However, the poorer households with low- or no-income generation capacity may not be in a position to benefit under this type of scenario.
To avoid trade-offs, policymakers may not try to reduce the cost and increase the affordability of healthy diets by shifting fiscal subsidies from producers (agriculture) to consumers. They may consider phasing out fiscal subsidies to producers that are tied to the production of a specific commodity and are proven distorting, environmentally harmful and not promoting the production of nutritious foods. In this case, the resources may be redirected to fiscal subsidies to producers that are decoupled from production but whose design is nutrition-sensitive, promotes the adoption of low-emission intensity technologies and includes other environmental conditionalities. At the same time, policymakers may want to take advantage of the evidence emerging from this report, which indicates that a fiscal subsidy to commodities whose consumption needs to increase to follow dietary guidelines is a very efficient policy. Unfortunately, subsidies to consumers form the tiniest share of all the support being provided to food and agriculture in the world (see Figure 18 in Chapter 3). To make the most of such fiscal subsidies, it is important to step up consumer support.
To take advantage of the opportunities that repurposing support may offer in practice, countries will have to get together at the multilateral table; unilateral action may be useful but insufficient in some cases, and in others it could have damaging consequences. The repurposing of border measures and market price controls and fiscal subsidies will have to consider countries’ commitments and flexibilities under current WTO rules, as well as issues in the ongoing negotiations (Box 15).
BOX 15Implications of repurposing agricultural subsidies for countries’ WTO commitments
Box 8 in Chapter 3 outlined how price incentives and fiscal support measures are disciplined by the WTO rules. In this context, it is important to consider that repurposing agricultural subsidies would have implications for countries’ commitments as WTO members.
For example, if a country raises fiscal subsidies to producers on nutritious foods with the objective of lowering their final cost to consumers, these would still be considered trade-distorting in the context of the WTO AoA, as product-specific subsidies are included in the Aggregate Measurement of Support (AMS), which is subject to limits. All WTO members have the right to provide subsidies to specific products – regardless of their nutritional value – if their AMS ceiling (which differs depending on country-specific WTO commitments) is not exceeded.* It would therefore be important to consider these limits if a country opts for shifting subsidies from one product to another.
If, on the other hand, countries choose to reduce trade-distorting subsidies, they have the option of providing direct income support to farmers instead. Income support that is decoupled from production levels can be used without any limits as part of “Green Box” measures (Box 8). Likewise, countries could increase GSS for which no limits are imposed under the WTO rules, provided that the criteria set in the AoA are met.
In essence, countries could reduce or eliminate product-specific subsidies for products with lower nutritional value or which do not contribute to healthy diets and introduce alternative measures that include the expansion of public funding to infrastructure services, research programmes for nutritious foods, and agricultural extension services without jeopardizing compliance with the WTO rules. This means that repurposing does not need to imply a reduction in the overall level of food and agricultural support, but rather a shifting to less trade-distorting measures.
Countries could also opt for a reduction of border measures (including high tariffs and in-quota tariffs) on nutritious foods such as fruits and vegetables, while not changing or even increasing trade protection for products high in fats, sugars or salt. Under WTO rules, countries are allowed to do so up to a certain limit (the bound level of tariffs).**
Repurposing agricultural subsidies, if undertaken by many countries, could even open a new chapter for agricultural trade negotiations at the WTO. Countries could find new ground for discussion on how to discipline trade-distorting domestic support. One option would be increasing the flexibility for providing product-specific subsidies to producers of nutritious foods. Likewise, in the context of the negotiations on market access that includes tariffs, countries could consider reducing the bound level of tariffs on fruits, vegetables, legumes and other products important to healthy diets, fostering trade in such products.
- * In providing trade-distorting support, LICs and MICs enjoy additional flexibilities under the “Special and Differential Treatment” provisions of the WTO. This includes agricultural input subsidies, which can be provided without any limits. ** Actual tariffs that the countries apply (applied tariffs) on agricultural and food products can be at any level below or equal to the bound level for each product.
The issue of GSS to improve the affordability of healthy diets is a special case. It is mostly relevant for countries where the current level of this type of support is low, agricultural transformation is still underway, and existing productivity gaps in agriculture remain large, which is generally the case of LICs and LMICs. In the context of healthy diets, GSS can be a critical component of public support to address issues such as, for example, Post-Harvest handling and Post-Harvest Loss (PHL), which can particularly affect perishable nutritious foods. When in line with the provisions of the relevant WTO agreements, this type of public expenditure can be provided without limits (Box 15).
Stepping up GSS for reducing the cost of nutritious foods so healthy diets become more affordable should not slow down inclusive agricultural transformation in LICs and LMICs. Moreover, by definition, GSS will collectively support agriculture, without excluding small farmers, women and youth. However, the way in which GSS expenditures are repurposed or scaled up in practice needs to take into account that productivity gaps are larger for some of these agrifood systems actors, particularly women who generally exhibit limited access to and control of productive resources and livelihood assets such as land and credit, inadequate agricultural extension and other services and rural infrastructure.236
A key challenge for policymakers in LICs, and perhaps also some LMICs, will not only be to reach compromises in repurposing food and agricultural support to achieve several inclusive agricultural transformation objectives that are well aligned with reducing the cost of nutritious foods. Considering their low budgets, governments of these countries will also have to mobilize significant financing to step up the provision of: i) GSS where it has to be mostly prioritized to effectively bridge productivity gaps in the production of nutritious foods with inclusivity and sustainability; and ii) fiscal subsidies to consumers to increase affordability. In this regard, international public investment support (e.g. from International Financial Organizations [IFIs], regional development banks, the Global Agriculture and Food Security Programme [GAFSP], and so forth) will be key to ease the transition towards higher GSS, especially in LICs.