ADDRESSING ENVIRONMENTAL CHALLENGES IN AGRICULTURE Agriculture is unique in its ability to both detract from and contribute to Green Growth in significant ways. Agricultural production affects both the availability of natural resources -- especially land and landscapes, soil and water -- and the environmental quality of these resources through depletion, pollution and biodiversity loss. The implications of certain environmental challenges – particularly climate change, water and land management, biodiversity issues and growing demand for biomass 

– present specific problems and opportunities for the agricultural sector entailing complex policy considerations. The challenge is to enhance the ability of agriculture to further Green Growth objectives rather than impede them. Climate change Climate change presents challenges for the agricultural sector in mitigating greenhouse gas emissions as well as adapting to climate impacts which are expected to have pronounced implications for farming. Climate change also offers opportunities in the agricultural capacity for carbon sequestration and the ability to offset emissions from other sectors. Complex synergies and trade-offs present themselves as agricultural producers attempt to reduce their carbon footprints while remaining competitive. Agriculture accounts for 10-12% of global greenhouse gas emissions, primarily nitrous oxide and methane (Figure 1). Nitrous oxide, produced naturally in soil but also from fertilizers, is released by farming activity and accounts for 60% of total agricultural emissions. Rice cultivation and livestock breeding both emit large quantities of methane accounting for 30% of emissions from the sector. Modern farming is also very energy intensive and the use of fossil fuels accounts for 10% of agricultural emissions in the form of carbon dioxide. Developing country agriculture is estimated to account for about 74% of total greenhouse gases from the sector. Not included here is deforestation mainly for conversion to agricultural uses which accounts for a further 17% of global greenhouse gas emissions. The climate footprint of agriculture is increasing as farming expands to produce more food for a growing world population. Policies aimed at reducing agricultural emissions may be more cost-efficient than some industrial and transport options. Improved cropland and grazing land management, changes in tillage methods, reduced fertilizer use and restoration of degraded lands will reduce nitrous oxide emissions. Methane emissions from livestock production can be lowered through genetics and improved nutrition and manure management. Steps can be taken to reduce agriculture’s carbon emissions by switching to low-energy technologies and on-farm generation of renewable energy. Energy efficiencies can also be achieved in the processing, transport and distribution of food products throughout the supply chain. 21 Figure 1: Global Greenhouse Gas Emissions by Gas Source: OECD, 2008c Agricultural adaptation to the effects of climate change is also crucial. Severe climate change will have impacts in the agricultural sector due to increases in global mean temperatures and weather variability, including precipitation. Alterations in the seasonal timing of rainfall and snow pack melt can lead to the higher incidence and severity of floods and droughts. Less-resilient agricultural production areas will suffer in particular as temperatures rise in semitropical and tropical latitudes and as already dry regions face even drier conditions. Production variability and uncertainty of agricultural supplies are expected to rise and, in more extreme cases, production zones might shift affecting global patterns of food, feed and fiber output. Government climate adaptation strategies in agriculture are needed. Farmers can shift sowing and harvesting dates, adopt different varieties or species, modify field operations such as tillage methods and fertilizer applications, and change grain drying and storing methods. Climate change will require greater attention to water saving practices both in terms of on-farm distribution and irrigation systems and larger infrastructure systems delivering water to farms. In developed as well as developing countries, adaptation also involves extending risk management approaches to include climate variability, increasing crop and disaster insurance, extending training and education, and strengthening extension and communication systems. Agriculture can help mitigate greenhouse gases through carbon sequestration as soil can capture and absorb carbon and offset emissions from farming and other sectors. For example, greenhouse gas emissions associated with livestock could be offset by capturing the carbon in pastureland. Although it is estimated that carbon capture and storage in soil could offset as much as 20% of global greenhouse gas emissions, advanced techniques to increase soil carbon content are experimental as well as expensive. Global funding arrangements, like the Clean Development Mechanism (CDM) under the Kyoto Protocol, 22 could offer incentives to farmers for climate change mitigation including carbon sequestration projects as well as small-scale wind power generators and reforestation. A range of land-based activities, such as reduced deforestation and degradation, agricultural land restoration and soil carbon sequestration, could be added to post-2012 climate mitigation and adaptation mechanisms. Water management The agricultural sector faces the challenge of increasing food production using less water due to pressures from climate change as well as from urbanization and industrialization. Agriculture is the major user of water in most countries accounting for 30%-40% of freshwater withdrawals in the OECD area and 70% globally (Figure 2). With demand for food and water both rising, farmers need to use water more efficiently and improve agricultural water management. A combination of policy instruments -- market-based instruments, water use quotas and other incentives -- is needed. Figure 2: Global Water Withdrawals (OECD) Source: OECD, 2008c Detrimental environmental effects from water are largely due to irrigation, which accounts for 70% of global agricultural water requirements. Inefficient use of water to increase farm output not only contributes to water shortages but can lead to flooding and off-farm pollution. Groundwater depletion and soil degradation due to excessive water use can exacerbate flood damage. The challenge is to ensure the optimal allocation of water resources to competing uses while preventing their degradation by pollution or over-depletion and respecting the ecosystems in which they are embedded. Farmland can also provide environmental services in acting as a flood sink and preserving aquatic ecosystems. Government supports to agricultural production linked to levels of outputs and inputs have exacerbated problems of water mismanagement and scarcity. Many OECD countries have succeeded in lowering farm support levels and in decoupling support from production volumes and input levels. The result has been more efficient water use, better adaptation to water scarcity and lower off-farm water pollution. 23 Regulations and licenses are the main policy tool for ensuring sustainable management of on-farm water resources, mainly groundwater. However, poor enforcement of these rules often leads to illegal groundwater pumping and degradation. To reduce water stress, enforcement of existing regulatory measures and development of mechanisms for volumetric management and charging are essential. Farmers need to deploy best-practice efficiency improvements for irrigation and other end-uses, along with more sustainable water harvesting. Tools are being developed to enable better water oversight including the computerized linking of soil moisture monitors to drip irrigation systems. Economic instruments, particularly appropriate water pricing and trading systems, could give incentives for agricultural water use efficiency. In OECD countries, most of the agricultural sector is connected to a water infrastructure network based on water tariffs. Although water charges should in principle reflect the supply and environmental costs of water, few countries practice full cost recovery due to potential negative effects on consumers and households. Current charges tend to reflect the operation and maintenance costs of water and do not include agriculture’s share of capital costs for water supply infrastructure, the environmental costs and benefits, or levels of water scarcity. These charges could be increased in stages to cover full operation and maintenance costs, capital costs and depreciation of assets, new investment, environmental externalities and the opportunity costs of water resources. Assigning property rights and responsibilities attached to water use and provision is a necessary condition for implementing market-based measures such as trading systems. Trading of water entitlements or buying and selling water access rights can provide a scarcity market price and encourage more efficient use of water resources. Formal water markets have emerged in some OECD countries, including the United States, Chile and Australia, 

where water resources are scarce. Under Australia's National Water Initiative, water rights can be transferred between different parties, such as irrigators, environmental water managers, and water infrastructure operators. In Chile, the 1981 Water Code declares that water rights are private property, separate from land, and can be freely traded. These trading approaches can be an efficient way of addressing water shortages, but raise questions about potential monopolization of water rights by richer users. Land management Because agriculture accounts for 37% of total land use (68% if the use of land for forest is included), it plays a key role in the management of land and soil resources, habitat protection, flood control, biodiversity maintenance, and shaping and protecting landscapes. With appropriate land management approaches, agriculture can make significant contributions to protecting ecosystems and habitats and providing other land-based eco-services. However, the increasing conversion of land area to farming and pastures can have detrimental impacts on environmental resources and ecosystems. Rising populations and incomes are driving the demand for more land for agriculture, pasturing, and food production. In recent decades, the conversion of land to crops and pastures has had major detrimental impacts on natural forests, animal habitats, and other important ecosystems, particularly in developing countries. In the case of forest land, a failure to align economic with environmental objectives leads to continued loss and degradation of land. With increasing demand for food, soil 24 resources are coming under pressure to maintain or raise agricultural productivity. This has led to longterm soil degradation due to erosion, pollution, and physical and chemical deterioration. High levels of soil nitrogen content and nitrous oxide emissions are due to higher fertilizer inputs and animal stocking densities

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