POLICY CONSIDERATIONS: of agriculture growing


POLICY CONSIDERATIONS: USING THE GREEN GROWTH POLICY TOOLKIT EFFECTIVELY The Green Growth Strategy seeks to augment ongoing OECD work to realize more sustainable growth and development through the elaboration of a policy framework integrating economic efficiency, environmental integrity and social equity objectives. With rising food demand and complex ecological challenges in agriculture, the diverse linkages between social welfare, agricultural economics and the environment must be taken into account in implementing the Green Growth Policy Toolkit. While policies should seek to internalize agricultural externalities (positive or negative) to the extent possible, Green Growth approaches must be tailored to the unique nature of the agricultural sector. More so than in other sectors, the choice, design and implementation of policies will differ across countries depending on local environmental and agricultural conditions and political economy factors. For primarily social motives, a greater emphasis is placed on government supports – rather than on market-based instruments – to increase environmental practices in agriculture, augment targeted R&D and facilitate structural adjustment. A set of broad policy approaches – including impact assessments, environmental cross-compliance mechanisms, structural adjustment measures and alternative farming solutions – will assist in balancing economic, environmental and social considerations to effectively implement the Green Growth Policy Toolkit in agriculture 

Impact assessments Prior to their implementation, agricultural policy measures in the Green Growth Policy Toolkit would benefit from impact assessments to evaluate the potential economic, environmental and social effects and their interrelations. Impact assessments can take into account national priorities and policy frameworks, local environmental and agricultural conditions, and alternative farm systems. Evaluation 30 criteria can be selected in advance and in most cases sufficient data is available to provide the basis for assessment. Impact assessment methodologies do not have to be complex, expensive or timeconsuming. Sustainability impact assessments (SIA) incorporate elements of OECD methodologies for regulatory impact assessments (RIA), environmental impact assessments (EIA) and strategic environmental assessments (SEA) (Figure 6). SIA are characterized by their interdisciplinary nature in evaluating economic, environmental and social impacts; their focus on highlighting short-term and long-term synergies and trade-offs; and their inclusive processes open to stakeholders. In this, sustainability assessments help governments frame problems, identify political sensitivities and scope solutions which will gain widespread acceptance

SIA involve eight basic steps. Screening and scoping determine whether a sustainability assessment is actually needed and establish the extent and depth of the evaluation to be conducted. Selecting tools and methods for the assessment is followed by identifying participants to determine which authorities, experts and stakeholders will be involved, to what extent, and at what points in the process. At the core of the assessment is impact analysis of potential economic, environmental and social effects which can employ a range of techniques including cost-benefit analysis. An important contribution of SIA is highlighting synergies and conflicts across the economic, environmental and social dimensions, including those between material and quality-of-life aspects of wellbeing. Mitigating measures are identified to reduce potential negative impacts and maximize sustainable outcomes. Presenting the results includes the delineation of alternative paths to reach Green Growth objectives so that decision-makers can clearly see and understand the costs and benefits of different policy options. SIA could assess how farm support policies may exacerbate or alleviate environmental problems, inadvertently encourage environmentally-harmful activities, and contribute to or detract from Green Growth. SIA can help evaluate how policies might stimulate innovation and the diffusion of green technologies so that emissions reduction and resource management costs can be lowered in the future. Identifying externalities involving trade-offs between current and future well-being can highlight issues of inter-generational equity and longer-term productivity challenges. The value of SIA is in predicting diverse and interrelated outcomes and helping to devise mutually reinforcing policies across the various dimensions of agricultural Green Growth. Environmental cross–compliance mechanisms Environmental cross-compliance is one means by which governments can influence farmers to give greater weight to environmental values in their production decisions. Environmental cross-compliance mechanisms require farmers to adopt good environmental practices or resource management programs in order to receive government supports. Linking payments to the fulfillment of environmental requirements, which is significant in the European Union, the United States and Switzerland, now applies to about one-third of the aggregate Producer Support Estimate (PSE) in the OECD area. Among the rationales for environmental cross-compliance in OECD agriculture is leveraging income support payments to better ensure compliance with environmental requirements, making government payments to farmers more acceptable to society, and reducing policy-related transactions costs. Cross compliance can economize on administrative and other costs relative to separate implementation of agricultural income supports, environmental regulations, and payments for environmental quality. Other benefits of environmental cross compliance schemes include the wider application of the Polluter Pays Principle in agriculture, the inclusion of a broader range of farmers and producers in environmental programs, and greater synergies between agricultural and environmental policies. Different environmental cross compliance approaches have been adopted.

 The European Union (EU) establishes a link between agricultural support payments and the respect of environmental regulations for ensuring the Good Agricultural and Environmental Condition (GAEC) of land and landscapes. Support 32 payments can be reduced or withdrawn for non-respect of these rules which define the reference level of environmental quality higher than that imposed by regulations. In the case of the United States and Switzerland, cross compliance support payments are conditional on meeting specific environmental practice or performance objectives. The United States uses these approaches principally in an effort to control soil erosion in agriculture. The Swiss approach subjects all forms of agricultural support payments to environmental requirements (Figure 7). Eligibility for supports depends on adherence to environmental legislation specific to agriculture as defined in the laws on water protection, pollution control, nature conservation and protection of rural landscape. In addition, there are several supplementary requirements including that at least 7% of farmland must be used as “ecological compensation areas”; an appropriate nutrient balance must be maintained; crops must be regularly rotated and the soil protected; and appropriate animal welfare measures must be adopted.

Environmental cross compliance mechanisms are not an option in all countries as they only apply where support payments exist and where environmental problems need to be addressed. In order to implement these schemes, there must be a system of income support payments to farmers in place that can be leveraged and also explicit or implicit “reference levels” which define the respective responsibilities of farmers and society for environmental protection. In countries where only economywide income and environmental instruments are implemented in agriculture, ecological objectives are obtained through legal obligations to comply with environmental regulations. There are other limitations to cross-compliance. In broadly based schemes, cross compliance payments may not necessarily be received by those farming the most environmentally sensitive land. Major differences in the costs of compliance on different farms mean that the level of production disincentive needed to achieve the chosen environmental standards will vary. Identifying these differences in compliance costs can involve major administrative and monitoring efforts. There are also problems in 33 setting appropriate standards as the basis of compliance since it is easier to monitor variables such as pollution levels than others such as land values and biodiversity maintenance. Structural adjustment measures Approaches are needed to manage the structural changes associated with the transition to a greener agricultural sector. At the macro-level, greener economic growth could prompt a shift in financial and labor resources from agriculture to other sectors, particularly services. At the micro-level, the implementation of the Green Growth Policy Toolkit will likely induce changes in traditional farming practices and entail employment and distributional effects. The development of new green services, technologies and industries offers opportunities to the agricultural sector but also requires careful management of the potential decline and job losses in more environmentally-damaging activities. Structural adjustment measures to facilitate the transition to Green Growth include supports, rural diversification programs, and training in green job skills. A major component of the Green Growth Policy Toolkit is reforming and decoupling agricultural supports from output and input levels to mitigate negative environmental impacts. Successful subsidy reform will depend on packaging and timing as well as possible compensation and assistance for those that are adversely affected. Under the WTO Agreement on Agriculture which aims at reducing tradedistorting supports in the Blue and Amber boxes, payments are permitted under the Green Box which promote structural adjustment and farm restructuring (Table 8). No limitation is placed on the duration or size of payments for producer retirement, which ensures the permanent exit of farmers from commercial production, or resource retirement, which facilitates taking land out of production and liquidating livestock herd

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