Achieving a Just Rural Transition: The opportunity in repurposing agricultural subsidies

Just Rural Transition - Repurposing Subsidies policy brief.pdf

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Agricultural subsidies represent one of the largest public investments in food systems globally. Governments across 54 countries direct an estimated US$842 billion per year to agricultural support, predominantly through producer subsidies. In low- and middle-income countries, input subsidies are the most common form of support, driven by political convenience and short-term food security imperatives. Evidence, however, increasingly shows that poorly designed subsidies disproportionately benefit larger farmers, crowd out private sector development, inadvertently lead to environmental degradation, and undermine dietary diversity, ultimately falling short of the "triple win" goals of better outcomes for people, climate, and nature under a Just Rural Transition (JRT).

As part of Wellspring’s work for the Foreign, Commonwealth and Development Office (FCDO), alongside Agulhas Applied Knowledge and Cowater International, we recently completed a policy brief exploring how governments and their development partners can redirect fiscal resources for better, more sustainable and equitable outcomes. The brief examines five main pathways:

1️⃣ Improving the design of existing subsidies: Targeted reforms, including digital voucher

systems, community-based targeting, and coupling subsidies with agronomic support, can mitigate some of the shortcomings of traditional approaches, though evidence of success remains limited.

2️⃣Facilitating private sector investment: Supporting financing mechanisms that can de-risk private sector investment such as direct credit lines and other financing vehicles, public-private partnerships (PPPs) in contract farming and developing agro-industrial parks can reduce the cost of finance and strengthen value chain linkages for smallholder farmers.

3️⃣ Payments for Environmental Services (PES): Direct payments to farmers and communities for sustainable land management practices can generate co-benefits for rural livelihoods, biodiversity, and climate resilience, provided participation barriers for the poorest are addressed.

4️⃣ Ecological fiscal transfers (EFTs): Linking subnational fiscal transfers to ecological outcomes creates incentives for local governments to prioritise sustainable development. This approach has grown from US$350 million to US$23 billion globally since 2007, but remains underused in Sub-Saharan Africa.

5️⃣ Investment in agricultural public goods: Uncoupled investment (i.e. not directly tied to the production of a specific commodity or the use of specific inputs) in irrigation, extension services, and R&D consistently outperforms input subsidies on long-term outcomes, with some estimates suggesting two to six times higher returns. Still, global spending on general agricultural public goods remains limited compared to coupled producer support.

Across all these alternatives, purposeful design with explicit focus on social inclusion, gender equity, and climate resilience is crucial for ensuring the most vulnerable are not left behind and ensuring progress toward a Just Rural Transition.