G20 Agricultural Subsidies

G20 Finance Ministers Should Align Their Agricultural Support with Climate and Nature by 2030

It is time for policymakers to act on implementing what was agreed in Montreal. 

This alliance of investors and their representatives is calling on the G20 Finance Ministers to uphold their commitment to reform agricultural subsidies so countries can meet their net-zero greenhouse gas emissions commitments by 2050 alongside meeting their commitments to global biodiversity and nature goals.  Biodiversity loss is already having a material impact on economic activity, and it is estimated that nearly $44 trillion dollars of economic value generation are dependent on ecosystem services, which translates to over half of global GDP. The impact on GDP has a trickle down effect on the financial system and all diversified portfolios. This statement follows the recent agreement of the Kunming-Montreal Global Biodiversity Framework (GBF) in December 2022, under which countries agreed under Target 18 to “identify by 2025, and eliminate, phase out or reform incentives, including subsidies, harmful for biodiversity in a proportionate, just, fair, effective and equitable way.” 

This alliance recognises that realigning subsidies with climate and nature goals also has the potential to improve the fiscal outlook for countries by reducing the strain on government budgets. According to the UN, governments provide nearly $500 billion per year of agricultural support that is price distorting and environmentally and socially harmful.^[1] Subsidies are pivotal in determining how land across the world is utilised and which commodities are produced. “Harmful” subsidies are incentivising the over-production and over-consumption of certain high-carbon agricultural products, and the damage caused to nature by subsidy regimes has been estimated at $4tn to $6tn per year.^[2] Subsidies create perverse incentives that focus on quantity at the expense of climate and nature. Therefore the repurposing of subsidies aligns with government, multilateral, and private sector commitments and efforts to transition to reach net zero and protect and restore nature by 2050, and is essential for investors with a long-term investment horizon.

Action on subsidy reform by G20 Finance Ministers is essential for climate mitigation and long-term environmental resilience which is critical for global financial stability, since climate change and nature loss are sources of systemic risk to investments. The IPCC estimates that up to 34% of existing areas for crops and livestock production could be unsuitable by the end of the century, materially impacting agricultural supply chains and companies.^[3]

This call is in keeping with the tone of the G20 Bali Leaders Declaration which promoted the need for ‘aligning private and public financial flows with biodiversity objectives’. Building on a previous investor statement focusing on the EU’s agricultural subsidies^[4], this alliance of investors draws attention to four recommendations to ensure that reforms to agricultural subsidies also include climate and nature protection, as well as the importance of supporting a Just Transition for affected stakeholders to protect sustainable investments and maximise opportunities.

Our recommendations to the G20 Finance Ministries include:

1. Use measurable, performance-based conditions to deliver financial support to member states and farmers in proportion with the cost of delivering public goods or environmental services^[5].

2. Shift incentives that prioritise yields of certain products at the expense of the climate and environment and balance this with new monetary incentives that put a value on sustainable agriculture^[6].

3. Decouple support from production metrics for single commodity transfers with high associated greenhouse gas emissions^[7]; and

4. Increase available funding for Just Transition Mechanisms^[8] or funds to unlock the necessary finance to support affected stakeholders who are impacted by reforms.

References

[1] Most agricultural funding distorts prices, harms environment: UN report  (This includes price incentives, such as import tariffs and export subsidies, as well as fiscal subsidies which are tied to the production of a specific commodity or input.)

[2] The Economics of Biodiversity: The Dasgupta Review

[3] IPCC WGII Sixth Assessment Report, Chapter 5

[4] Alliance Urges Greener Reforms of EU Common Agricultural Policy

[5] As an example, a results-based approach could be used that links support to clear and measurable targets (e.g. GHG reduction or biodiversity protection).

[6] Examples could include financing a transition towards regenerative practices.

[7] Examples of highly carbon intensive commodities include red meat and dairy.

[8] A Just Transition means greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities.