In as much as some countries use subsidies to revitalize production in their collapsing agricultural subsectors (with a purpose of not only increasing production but also enhancing incomes of small-holder farmers), such distortions at times have adverse (and at times beneficial) effects on global trade with the true effect so far being blur. I humbly would like to have expert views on some of the findings from empirical studies so far on this issue.
I take your question as what is the overall effect of agricultural subsidies in industrialised countries on them and other (especially developing) countries. In that spirit I give you my modest contribution; I am sure other will point to better empirical studies and results.
Agricultural subsides pursue political, tactical, environmental or social objectives, but they are very costly for the economy, and can cause serious unintended distortions, depending on how they were designed. Subsidies whose amount is linked to how much is produced are particularly bad, because they lead to overproduction, which is thrown away wastefully, or dumped in world markets. This causes world prices to fall below break-even levels for unsubsidised developing country producers.
In recent years, developed countries have modified their subsidy programs to make them independent of production, or even subject to production limits and other conditions such as environmental sustainability. The amounts also have been cut because of tight budgets after the financial crisis and its bailouts. (see, for example, the EU's Trade Policy Review at the WTO: http://www.wto.org/english/tratop_e/tpr_e/tp384_e.htm)
For developing countries, rich country agricultural subsidies benefit net food consumers, and hurt net food producers. When agricultural commodities were cheap, some latin american countries could industrialise very rapidly, by setting high import tariffs and keeping wages very low, because food was cheap. At the same time, the countryside was extremely poor and people migrated in huge numbers to cities like Mexico or Sao Paulo.
I am sure there is a large number of empirical studies dealing with eliminating agricultural subsidies. I think Porto (2005) at the World Bank is noteworthy, because he looked at household census data, and allowed for dynamic effects. This means that, after agricultural prices increase (bc US eliminated its subsidy), some net consumer households will become net producers (ie. previously unemployed or informal people in the cities will turn back to agriculture, and buy tools from city dwellers, etc.) . With this effect, the overall benefits for developing countries could be potentially higher than just looking at who is in agriculture, who is in industry, in services,... Here's the link to the paper:
https://openknowledge.worldbank.org/bitstream/handle/10986/8596/wps3695.pdf?sequence=1
For more news and data on subsidies (agricultural and other), you can join the "Subsidy Wonkrs" group on Linked-in. I recently started a discussion there on the fight over Agricultural subsidies at the WTO.
Distortion through subsidy can have both positive and negative effects on food security, poverty reduction and income generation at the national and regional levels.
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