Recently, the government has drawn up the 2016 budget plan by adjusting the support structure of state-funded programs after reviewing the overall national subsidy scheme. In the National Assembly, the effective use and allocation of governmental subsidies has emerged as an important agenda item in light of the tax revenue shortage and sovereign debt. Against this backdrop, this report assessed the results of agriculture subsidy programs and reviewed suggestions for their improvement.

   The financial support for the agricultural sector stands at some KRW 14 trillion in 2016, including farming subsidies of KRW 6.4 trillion. According to the assessment of agricultural subsidy programs, the direct payment for rice paddies, a representative program to help farming households secure income, turns out to be unsatisfactory in stabilizing their income. The direct payments for fields and eco-friendly agriculture have also shown poor performance in execution rates due to low participation of farmers, thus failing to attain their goals.

   The plain business support program, which was introduced to renovate the management of farming households through collaborative farming and management, is concentrated on the joint use of agricultural machines, with little impact on creating added value in agro-products. Meanwhile, the transfer income tax break for self-cultivated agricultural land for more than eight years, aiming to build the production foundation for agriculture through retaining and expanding self-farming households, has borne insufficient fruit, given that the number of self-farming households has recently declined while leased farmland has increased. This means that the actual beneficiaries of the tax policy are those who own farmland in the areas where land prices rise significantly. The zero rate VAT measure for agricultural and forestry equipment and tools was implemented to fund the operation costs of farmers, but it has only resulted in the oversupply of farming machines, fertilizers, and agricultural pesticides.

   Therefore, it is recommended to implement the agricultural subsidy programs after considering their performances and combining financial support and tax cuts. It would also be desirable to restructure the agricultural subsidy allocation scheme through setting up the adjustment criteria and exploring possible measures.