# **1 Introduction**

Governments subsidize agriculture to the tune of US$635 billion per year (Gautam et al. 2022). These subsidies have many impacts; some intended, and some unintended. Agricultural subsidies are often intended to increase agricultural efficiency by incentivizing the increased use of inputs such as fertilizer, improved seeds, or water from irrigation, or encouraging increased production of certain crops to achieve domestic self-sufficiency goals (Ellis 1992). Subsidies are also often part of rural development, livelihood, or safety net programs. Indeed, with 80 percent of the world’s extreme poor and 75 percent of the moderate poor living in rural areas (Castaneda et al. 2016) and engaging largely in agriculture, such subsidies can act as crucial income support for the rural poor, reducing production costs through input subsidies and increasing the marginal revenue of production through output subsidies.

In many countries, these subsidies make up significant shares of both government budgets and agricultural production value. In the 53 countries and regions<sup>1</sup> with available data on subsidies, the average estimated total subsidy to agriculture—including input and output subsidies, and public service provision such as research and development, infrastructure, and markets—is 18 percent of total agricultural production value. In some countries, it exceeds 40 percent (figure 1). Given the magnitude of these subsidies their distributional implications are of significant consequence. An important indicator of their impact on society, then, is their progressiveness, or the share that is captured by the lower versus higher income quantiles. But global estimates on the equity impacts of agricultural subsidies are lacking, particularly in developing countries.

In richer countries, such as Canada, the United States, and European Union (EU) members, evidence suggests that support to agriculture is disproportionately distributed to larger farms (Moreddu 2011). This is a natural outcome when agricultural support is tied, as it often is, to production or related factors such as land (FAO, UNDP, and UNEP 2021). If inputs and outputs are subsidized in proportion to quantities used and produced, then larger and richer farmers will always receive a disproportionate share of the benefits. This can also have knock-on, policy-relevant consequences for other areas of society. For example, one study finds that female-headed farms, which tend to be smaller, are less likely to benefit from agricultural subsidies than male-headed farms (FAO 2011).

In addition to household distribution, the spatial incidence of subsidies may also be of interest to policy makers. Output subsidy distribution is often based on producing a specific crop. By setting price floors or trade restrictions on certain crops, governments are (possibly inadvertently) supporting particular regions of their countries that are more suitable for growing those crop types. This will have social, economic, and political implications that extend beyond how progressive or regressive the subsidy is at the household level. For example, if they disproportionately benefit poorer regions, even if captured by richer households within those regions, subsidies may have positive distributional impacts through regional multiplier effects. Thus, from a regional development perspective, the spatial distribution of subsidies matters.

> 1 This includes the EU-28 as a single, aggregate entity. From here on, where we talk about _countries_ , we are referring to _countries/regions_ , as the data include the EU-28.

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