A developed country expert takes a look at ag policy in the Global South

I thought I would take a look outside my comfort zone and see how agricultural tax and subsidy policies are developing in DCs and emerging countries.   I am not an expert on either so apologies in advance for any errors or misunderstandings.   I have drawn a lot on IMF, FAO and Royal Geographical Society analyses.

Caution is necessary in making generalizations about developing countries as they range from emerging countries that are significant agricultural exporters to least developed countries where semi-subsistence and subsistence agriculture is predominates and engagement with the global economy is limited.   Each country can tell a different story that is the product of interacting factors that include climatic conditions (and how rapidly they are changing); economic structures; and the political framework.    However, some useful generalizations can be made about what is a complex and changing picture.   In particular, developing countries are being increasingly pressed by the World Bank and other international institutions to take account of climate change in their domestic policies and indeed for many of them water scarcity is an increasing challenge.

Leading Mercosur members

The variety of trajectories and the factors that influence them can be considered by briefly examining the cases of the three leading Mercosur countries: Chile, Argentina and Brazil.  Each of them is a significant agricultural exporter and in that sense can be seen to be beneficiaries of globalization, but the constraints and opportunities they face have been mediated by domestic considerations.   Above all, one can see the influence of path dependency, historical choices of strategy.

Chile is an OECD member, reflecting its relative prosperity.  It has a dynamic domestic retail market with sophisticated consumers that help to underpin the agri-food sector as a whole.   It has a wide variety of climatic regimes, but is particularly strong in wine, fruit and vegetables.  In 2022 agriculture and related sectors accounted for some 27 per cent of total Chilean exports.    Political tensions surrounding the constitution, but also stemming from income divergence, have not been resolved, but on the whole there is a stable political and regulatory environment.    

However, a crime wave contributed to growing unrest in the run up to the presidential elections scheduled for November 2025.   Agricultural technology and production is well supported by a mix of public, private and academic stakeholders. The country has had a relatively open commercial policy with 33 international trade agreements that cover 65 markets.   Water scarcity as a result of climate change is a potential challenge with 70 per cent of available water resources used by agriculture.

Argentina is in many respects a story of long-term decline resulting largely from mismanagement by successive populist governments.   Nevertheless, it remains a major exporter of grain, soya, meat and wine (the latter, particularly from the Andes foothills, is an international success story).  It is the world’s third largest agricultural exporter, with the agricultural sector accounting for 16 per cent of GDP and 11 per cent of tax revenues in 2021.   There has been a history of governments imposing export taxes on the sector to raise revenues, aggravated by uncertainty surrounding the peso.

 In 2021, Argentina ranked second among countries with the highest rate of tax collection from duties (2.1 per cent of GDP).   The World Bank notes that ‘In recent years the country has been losing market share in international markets which raises concerns about the sector’s competitiveness.’ In the World Bank’s view ‘the country’s poor performance in agri-food production and exports relative to its potential can be attributed to policies that have heavily taxed and constrained the sector.’

Even under the libertarian oriented Milei regime these policies have not changed fundamentally. The administration’s economic strategy relies on agricultural exports bringing in badly needed foreign currency to build up the central bank’s depleted foreign exchange reserves and to boost the state’s financial credibility.   In January 2025 Milei temporarily lowered export duties on key agricultural exports, e.g., from 33 per cent to 26 per cent for soybeans, and the main grains from 12 per cent to 9.5 per cent.   However, he made it clear that the duties would be reintroduced in July to the disappointment of large scale agricultural producers.

 Brazil’s great asset is plentiful supplies of land for growing a range of crops and raising beef, but the grubbing up of large tracts of Amazon rain forest has attracted international criticism because of its potential adverse contribution to climate change.   Agriculture has accounted for around 25 per cent of GDP in the last two decades   Brazil is the fourth largest agricultural producer in the world and is the leading producer of crops such as soy, sugar cane and maize. 

In 2025 Brazil found itself locked in a trade battle with the US despite running a trade deficit with that country.   President Trump threatened 50 per cent tariffs against Brazil because of the court proceedings against former right-wing president Bolsinaro who was charged with plotting a coup.  These are among the largest tariffs threatened against any country by the US, but Brazil took a defiant stance, resenting interference in its internal affairs on this and other matters.   This example show how patterns of agricultural trade can be disrupted by considerations that have nothing to do with agriculture. 

These three emerging countries are substantially reliant on agricultural trade and this influences their domestic and international trade policies.   At the other end of the spectrum are the countries of sub-Saharan Africa where water constraints are particularly severe and are worsening because of climate change. 

Charities such as Farm Africa follow an incremental strategy of converting subsistence farmers (often women) into semi-subsistence farmers who sell into local markets so that they can invest in their crops.   The International Monetary Fund (IMF) notes that ‘overall (explicit and implicit) agriculture and food subsidies are lowest (in fact, often negative) in sub-Saharan Africa {and] relatively low in Latin America and the Caribbean.’  The strong implicit taxation of low income developing countries agriculture ‘is primarily a sub-Saharan African phenomenon.’

Kenya

 There are, nevertheless, some relative success stories which are related to international trade.  ‘Agriculture is key to Kenya's economy, contributing 33 per cent of the Gross Domestic Product (GDP) and another 27 per cent of GDP indirectly through linkages with other sectors. The sector employs more than 40 per cent of the total population and more than 70 per cent of Kenya's rural people.’  (FAO). 

Kenya joined the WTO in 1995 as it sought to move away from an import substitution model in favour of an export oriented engagement with the global economy.  Changes in the political environment may have contributed to this shift in terms of: ‘the gradual transition to a relatively embryonic democratic multi party-based political system.  Despite democratic electoral process, Kenya follows a hybrid regime—a mixed type of political regime that combines autocratic features with democratic ones.’  (Singh, 2023, 2567).   Nevertheless, there are episode of instability including rioting, fuelled by continuing income inequality and poverty in urban and rural settings, even if overall levels of poverty have declined.

Kenya has developed a strong horticultural export trade with Europe, particularly the UK, becoming a leading exporter of cabbages and leguminous vegetables such as peas, beans and mage tout.  As they are high value and perishable, they are generally ‘air freighted for freshness’, a practice that has attracted criticism because of carbon emissions.  Kenya sends out about 350 tonnes of vegetables and cut flowers each night ready to be sold next day in UK supermarkets.  Horticulture accounts for over 90 per cent of exports.   The country has been a pioneer in the development of the use of biological pest control products as an alternative to chemical pesticides.      

However, critics of Kenya’s integration in global value chains argue that ‘The framework considers value chain inclusion as a management or competency issue but overlooks the asymmetrical relations in the agricultural value chain (buyer-driven) dominated by lead firms. Furthermore, it fails to recognise that small and marginalised farmers have limited capacity to assess risk factors that exist due to asymmetrical power relations.’ (Singh, 2023,2567).  Farms based in Kenya that have contracts with UK companies are high-tech, commercial businesses that have to produce food to very high standards.     Kenya’s integration in global value chains has had positive economic results for the country, but there are concerns about the wages paid to labourers, over use of irrigation and other environmental impacts.

Input subsidies were important in developing countries in the 1960s and 1970s, but the preference of growing urban populations for cheap food saw farmers disadvantaged.   Producer subsidies were restored in many countries in the 21^st century, often with the support of donors. As developing countries become more prosperous it is possible to introduce new producer support programmes such as the Kenyan Fertilizer Support Programme in 2023 which covered 54 per cent of fertilizer costs.   In LIDCs there is not the fiscal space to provide subsidies and after account is taken of border measures and market price control net assistance to agriculture is negative.

‘In Emerging and Developing Asia, implicit support starts out negative, a tax on agriculture …. And after the late 2000s, it becomes strongly positive.’  (IMF)   Historically Taiwan used the agriculture sector to provide capital for industrialization, as indeed happened in Britain’s Industrial Revolution but without government intervention.   Farmers had to buy fertilizer from government factories at 40 per cent above the market while taxes had to be paid for in the rice they produced.  Those policies have long since been abandoned.

For agricultural exporting countries like those in the southern cone of South America the international trade regime remains of critical importance.   These are generally emerging countries, but it is also important for countries integrated into supplying global value chains such as Kenya.  Global value chains (GVCs) have played a transformative role in reshaping agricultural trade flows by linking producers in developing countries with retailers and processors in developed and increasingly other developing economies.   Peru offers another example of a boom in horticultural exports such as avocados and blueberries with trade agreements with China and Japan opening up new markets.   For structural reasons, LIDCs have less direct engagement with global markets.

In analysing DCs one can see aggregate trends that are reshaping trade flows, but also particular country stories that reflect specific geographic considerations and economic and political histories which can lock countries into path dependency, but they can also embark on new paths.    What us therefore needed is a political economy that takes account of both specific national considerations and the international context.   The erratic trade policies of the US make it even more challenging to develop such a framework.