Agriculture and the Green Transition

Industrial policy has returned to the global economic agenda with remarkable force. Much of the recent debate has focused on manufacturing, high-tech competition, supply-chain resilience, and the tools governments might deploy to fix—or disrupt—market outcomes. Yet the field that has lived with extensive government intervention the longest is often overlooked in these discussions: agriculture. 

Agriculture has dealt with questions of subsidies, market distortions, policy trade-offs, and social objectives for decades. It has also been considered a strategic sector, at the crossroads of international geopolitics and national sovereignty agendas. It therefore offers valuable lessons—and warnings—for today’s industrial and green industrial policy debates. Moreover, agriculture is not insulated from these new policy directions. Decisions made in industrial, energy, and climate arenas increasingly shape agricultural realities upstream and downstream, especially as the bioeconomy expands. 

In what follows, I highlight two sets of insights: what industrial policy can learn from agriculture’s long history of intervention, and how emerging green industrial strategies will, in turn, reshape agriculture. 

Agriculture: A sector long shaped by policies 

Agriculture is not a typical market. Around the world, it is—by design—highly distorted. Support levels of 25%–30% of production value are not unusual for certain commodities, far exceeding the levels now considered significant in manufacturing. Governments intervene because agriculture carries multiple outcomes, economic and non-economic alike, that markets alone cannot price. This has led to a specific treatment of agriculture in international trade talks, both at the global and bilateral levels. For instance, it took half a century after the signing of the General Agreement on Tariffs and Trade to bring disciplines to agricultural subsidies with the Uruguay Round Agreement, and the agricultural issue has remained a major hindrance in unlocking the Doha Round negotiations. 

More than 20 years ago, the European Union defended its agricultural policies by emphasizing agriculture’s multifunctionality—its contributions to jobs, food security, rural landscape preservation, culture, biodiversity, and tourism. On one hand, the social value of agriculture often exceeds its market value. On the other hand, food prices are already too high for too many people globally: 2.6 billion people worldwide are not able to afford healthy diets. 

Agricultural policy has followed a familiar sequence across countries over the past decades: 

• first, produce more food—especially staples. This was the mantra of the green revolution.
• then, stabilize and raise farm incomes, often when the realization of the first objective has led to overproduction and the fall of agricultural prices.
• then, integrate environmental concerns and limit externalities associated with agricultural production.
• and now, promote healthier diets and long-term sustainability while trying to address problems originating in distorted production patterns. 

These goals all address important human needs and cover different aspects of the sustainability agenda, including social, economic, and environmental outcomes. However, they often conflict, leading to trade-offs, and their weighting in policy decisions varies across periods and development contexts. Policies designed in the post-war era to boost output were never intended to minimize environmental impact, yet governments now retrofit them to justify environmental objectives or to fit them into World Trade Organization “green box” rules, which encompass policies considered less distortive and that address market failures. Unfortunately, these market failures are real, and costs are adding up, especially when tracking them from farm to fork: the global agrifood systems impose hidden costs equal to 10% of global GDP, as show by the Food and Agriculture Organization of the United Nations (FAO), through degraded ecosystems, soil loss, and health impacts linked to undernutrition and obesity. Policy-makers thus face a dual challenge: ensuring food security while ensuring agriculture does not impose unsustainable environmental and health costs. 

Rethinking Policies and the Repurposing Agenda 

The policy debate around agriculture today is dominated by the concept of repurposing—redirecting public spending to deliver more societal value, by aligning with new priorities, notably sustainability, while minimizing distortions and economic inefficiencies. 

But repurposing is difficult, and past policies have long-standing consequences. Removing past subsidies is not only a political economy nightmare: no part of society likes to see its benefits removed, but also an economic conundrum. Agriculture depends on land, a non-mobile, long-lived asset whose price capitalizes subsidies: higher agricultural subsidies mean higher land prices. Phasing them out would bankrupt farmers who contracted loans to buy land. This political and financial reality helps explain why countries continue to transfer large sums to agriculture—and why reforms are slow. It is difficult for farmers to become green in their practices while they are in the red on their financial statements. 

The repurposing agenda needs to address two distinct challenges that have two separate implications for policy design and taxpayers. 

• Moving from old agricultural practices, often incentivized through “bad” subsidies, to new ones has a transition cost, e.g., stopping fertilizer overuse to adopt regenerative practices that increase soil health in the long term is often associated with short-term yield losses. Keeping farmers profitable during the transition needs support: public payments can help bridge that gap. After the transition, support can gradually decline, and a new equilibrium that guarantees farm profitability will be reached.
• The long-term delivery of public goods, especially ecosystem services, requires continuous payments.
• Some practices—such as agroforestry, soil carbon restoration, or maintaining tree cover—yield high social value but low private returns. If society wants these outcomes, it must pay for them indefinitely. While new markets could be created and used to mediate transfer from one part of society to others with limited public sector intervention, in many cases, relying on governments and taxpayers' money is the most immediate solution. 

These ideas echo debates now emerging in industrial policy: what outcomes are we buying, for how long, and at what trade-offs? 

Food Security as a National Security Policy 

Controlling bread and breadbaskets has, for centuries, been a way to control people and nations. Today, food security is part of the national security agenda of many countries and interacts with the wider web of core securities: water, energy, and health. At the sectoral level, we see similarities between the “national security” argument used in industry and the “food security” or ‘’food sovereignty” argument used in agriculture. The logic is similar: countries want to guarantee a local supply of essential goods for their economy and their population, and avoid being dependent on foreign powers. Still, agriculture behaves differently, and the nascent industry justification does not. 

Unlike manufacturing, primary agricultural production has limited economies of scale. Learning by doing at scale remained limited, and countries can not simply create massive farms without encountering escalating environmental damage, biosecurity risks, and resource limits. The one area where scale matters is research and development (R&D), where large investments can transform crop varieties and yields. 

In most other cases, expanding domestic production to achieve some self-sufficiency target may create more problems—disease risk, environmental stress, water scarcity—than it solves. 

Policies Could Improve Efficiency, but the Notion of Productivity Needs to Be Reconsidered 

Agriculture also forces us to rethink productivity metrics. Traditional measures—yield per hectare—capture only land productivity, not overall efficiency. A smallholder farm with high yields may still deliver very low income per worker. Total factor productivity is a better notion, always favoured by economists, but it remains anchored in what is priced: marketed outputs, inputs and factors. As we have seen, agricultural production involves a lot of missing markets, leading to hidden costs and forgotten benefits. 

Working with the Organisation for Economic Co-operation and Development (OECD), FAO is developing measures of sustainable productivity, integrating carbon footprints, water use, biodiversity impacts, and other non-market externalities. A policy that appears inefficient in market terms may significantly improve collective welfare and societal productivity when environmental and health benefits are considered. 

The right productivity metrics will also serve as a guiding star for better policies and investments. For instance, in the long run, R&D expenditures have played a critical role in increasing production while limiting pressure on land. However, productivity metrics that will not reflect the benefits of water-saving technologies or nature-based solutions will encourage the continuation of old innovation models. 

This broader framing is essential as industrial policy increasingly pursues climate and sustainability goals. 

How Industrial and Green Industrial Policies Affect Agriculture 

Agriculture does not operate in isolation. Industrial and climate policies shape the cost and availability of inputs, the structure of markets, and the competitive environment for farmers. 

Upstream Linkages: Equipment, inputs, and energy 

Some countries support agriculture indirectly through industrial policy. Subsidies for tractor or fertilizer producers allow them to sell inputs below cost to farmers, without notifying these as agricultural subsidies under WTO rules. 

Energy policy also matters profoundly. Agriculture is energy-intensive, and high fuel or electricity prices raise production costs. Conversely, low-cost solar power can transform rural areas, enabling affordable irrigation in regions far from the grid. 

The green energy transition—hydrogen, green ammonia—could reduce input costs in the long term. But competition for these resources is intensifying since ammonia is a cornerstone of the fertilizer industry. Maritime transport, for example, is moving toward ammonia-based fuels. These sectors can pay higher prices than farmers, potentially crowding out agriculture unless policies anticipate the distributional impacts across and within countries. 

Downstream Linkages: Biofuels and the bioeconomy 

The global push to decarbonize will sharply increase demand for biomass—for biofuels, bioplastics, construction materials, and more. This demand can support farmers by increasing commodity prices or creating new markets. 

However, it can also create tensions: 

• food vs. fuel, as seen in past biofuel booms.
• land competition, especially in countries with limited arable land.
• policy conflicts, where ministries of trade, environment, and agriculture disagree over whether a policy aims to be “green” or to support domestic producers: sustainable feedstocks and locally sourced feedstocks are not synonymous. 

As the world shifts from fossil carbon to biogenic carbon, agriculture becomes a central supplier of industrial feedstocks. The implications—economic, environmental, and social—are enormous. 

Uneven Capacities and Fiscal Realities 

Today, half of all fiscal transfers to farmers occur in high-income countries, with another half in middle-income countries, but this ratio is changing quickly. Low-income countries, despite having the most farmers, provide almost no support simply because they lack fiscal space. 

This asymmetry matters. As industrial and green industrial policies reshape agriculture globally, richer countries will be better positioned to cushion farmers against adjustment costs, while poorer countries will face more acute pressures through market pressures and new regulations. 

Bringing Agriculture Back Into the Industrial Policy Debate 

Agriculture offers decades of experience—positive and negative—that can inform today’s industrial policy revival. It shows the difficulty of phasing out entrenched subsidies, the importance of accounting for externalities, the power of R&D, the political economy of land, and the need to align multiple societal objectives. 

At the same time, emerging industrial and green industrial policies are already transforming agriculture through energy transitions, bioeconomy expansion, input markets, and sustainability standards. 

We must therefore view industrial policy not only through the lens of manufacturing competitiveness, but also through its deep interconnections with agrifood systems, rural livelihoods, and global sustainability. Aligning agrifood system transformation with the evolution of other sectors requires a holistic strategy with clear goals and considering linkages: this is why the FAO has released a Global Roadmap to achieve food security and nutrition in the context of climate actions, compatible with the International Energy Agency roadmap toward net-zero. 

Agriculture is both a source of lessons and a sector profoundly affected by the industrial policies of the future. Ignoring this link would mean overlooking one of the most critical dimensions of economic transformation in the decades ahead, and a core sector in our daily life and the geopolitics of this world.

David Laborde is Director of the Agrifood Economics Division, FAO.