The OECD Green Growth Strategy aims to deliver on environmentally-sound economic growth by advancing a comprehensive policy toolkit which is flexible enough to be tailored to differing national circumstances and stages of development. In agriculture, the government policy toolkit for Green Growth will consist primarily of a mix of regulations, supports and research and development (R&D) directed to enhancing environmentally-sound agricultural output (Table 3). The optimal choice of policy instrument depends on the economic, environmental and social objectives to be achieved, the agricultural system to be addressed, and the political economy context in which the instrument will operate.
Regulations and standards Regulation is one of the key levers governments can use to promote Green Growth in agriculture, including rules governing land and water use, chemical inputs, food safety and quality, and animal welfare. Most government policies, including in the environmental realm, are premised on the need to correct the failures of markets to take into account public, rather than just private, welfare. Regulations are the most common public policy instrument for getting markets and producers to pay for the public costs of harmful “externalities” such as pollution and natural resource degradation in agriculture and other sectors. A few OECD countries rely mostly on regulatory requirements to address environmental issues in agriculture. All OECD countries impose a complex set of regulations to prevent negative impacts on the environment from agricultural activities (Table 4). These include limits on the intensity of production, the application of chemicals and pesticides, and the generation of pollution and waste. There are also requirements concerning the use of land, including buffer strips and green coverage requirements, and the maintenance of water quality, including controls on groundwater, irrigation and silage and slurry operations. Stricter regulations tend to be applied in areas with higher environmental or resource conservation values. Over time, OECD regulatory requirements for agricultural production have broadened in scope and have become more stringent. Standards for agricultural products are a related tool to prompt producers to change production and handling methods and to remove less sustainable products from the market. Government standards for food products to ensure that they are not harmful to human health may require reduced inputs of fertilizers, pesticides and other chemicals. Other standards address storing and handling food products, ensuring animal welfare, and product labeling. In the interest of human health, governments may also require that food contain certain nutrients through the enrichment and fortification of products. Environmental regulations and standards may require increased investments to comply with production and processing rules, raising farmers’ costs and affecting competitiveness in the short-term. The impact of regulatory costs on farmers can be reduced by improved management approaches and technology. An increasing number of regulatory requirements derive from state, provincial, regional or local measures. Regulations generally need to be tailored to specific farming systems and the local nature of environmental concerns as a one-size-fits-all requirement may be neither environmentally effective nor economically efficient. Regulations have a broad positive impact on the environment and society in terms of cleaner air and water and safer food products. In the longer-term, environmental regulations and standards raise farm welfare by improving productivity and eco-efficiency through cleaner production processes and enhanced resource management techniques. Food labeling regulations benefit farmers by helping to internalize environmental values in commodity prices. Where labeled and certified as eco-friendly, farm products receive marketing premiums contributing to farm incomes. However, public mandates on agricultural producers to reduce emissions and to conserve water and natural resources may be inadequate to respond to growing environmental concerns. A Green Growth 11 strategy in agriculture involves strengthened regulations and standards to ensure that agricultural producers internalize environmental costs to a greater extent. For example, the discharge of dangerous substances into agricultural land, groundwater and waterways could be better controlled and/or prohibited. Reductions in greenhouse gas emissions from agriculture can be achieved through rules for land, soil and nutrient management to lower emissions from soil decomposition. Livestock management regulations have been shown to greatly reduce methane emissions. Stricter health and safety standards for food commodities can reduce the use of polluting agrochemicals, e.g. nitrogen and phosphorous loading. Fines and penalties for breaching environmental laws in agriculture are the usual means of enforcement although they are not always adequately applied.
Support measures Governments provide supports or subsidies to farmers and agribusinesses to manage the supply of agricultural commodities, influence their cost, supplement the income of producers and achieve other social and environmental aims. These payments, which were estimated to total EUR 182 billion in 2009 in OECD countries in terms of Producer Support Estimates (PSE), can be ranked according to their impacts on the environment (Table 5). Market price support mechanisms and payments based on output are the most harmful for the environment. Payments based on cropped surface, animal numbers, historical entitlements or overall farming income are more neutral in environmental terms since they place limits on production and constitute a form of decoupled support. Payments based on input and resource constraints are generally beneficial because they help reduce agricultural pressures on the environment. These include supports given to farming systems and practices that preserve environmentally sensitive land and biodiversity; maintain flood, drought or soil erosion control; and provide sinks for greenhouse gases and carbon storage. However, green supports to farming are far outweighed and offset by the damaging environmental effects of input-linked and production-linked support policies. In the Green Growth Policy Toolkit, direct supports for commodity production and unconstrained input use should be reduced or redirected to achieve ecological aims.
Payments based on levels of input use have increased in this time period from 9% to 13% of total PSE. There are three main targets of supports for input use: 1) support for the (unconstrained) use of variable inputs such as credit, fertilizers, fuel or water; 2) support for fixed capital formation or on-farm investments; and 3) support for on-farm services including pest and disease control and seed and soil testing. The first category has by far the most negative environmental impacts. Support to input use in OECD countries is evenly divided across these three approaches, although there are wide variations among countries. Domestic price supports have been largely replaced in this decade by direct payments based on past entitlement levels or farm income which may or may not require production. Payments that do not require production and are based on factors other than output (e.g. area, animals, receipts or income) now account for over a third of total support to producers in the OECD area. These supports are mostly aimed at increasing farm income with moderate production distorting and environmentally damaging effects. Environmental supports or those based on non-commodity outputs continue to increase their share of total PSE and now account for about 4% of agricultural supports in OECD countries. Payments are made to agricultural producers to adopt specific farming practices such as planting trees or changing tillage practices in a way that can contribute to alleviating climate change or flood risk. Payments are also made to farmers to provide public goods such as landscape elements, biodiversity preservation and wetland conservation. Countries such as the United States are now considering tax credits for projects protecting or restoring forests or shifting to carbon-storing farming methods. In some countries, it is possible to make supports conditional on producers following specified production practices in pursuit of broader environmental objectives. Environmental cross compliance may be required, with the policy acting as compensation or incentive to meet regulatory requirements, or may be part of voluntary programs. Environmental cross-compliance schemes have increased to apply to 33% of total PSE in the period 2007-09. Among OECD countries, the European Union, the United States and Switzerland provide around 50% of their agricultural supports with some constraints linked to environmental protection and other objectives. The Green Growth Policy Toolkit promotes a shift away from more environmentally harmful supports towards environmentally beneficial payments and requirements. These adjustments would enhance the productivity of environmental investments and make farm support measures a more effective vehicle for Green Growth. It would also increase the effectiveness of environmental regulations in agriculture due to a decrease in the negative ecological impacts of farm support. A shift in the composition of agricultural subsidies would generally reduce the cost of achieving environmental objectives and increase eco-efficiency. Economic instruments Economic instruments – primarily taxes and charges and tradable permit systems – are used to discourage practices that are damaging to the environment by raising the cost of these activities to producers. However, these economic instruments do not play a significant role in promoting Green 14 Growth in agriculture compared to the use of such measures for environmental objectives in other sectors. Due to both the nature of property rights systems and difficulties in identifying sources of pollution, taxes are relatively ineffective for dealing with negative environmental externalities in agriculture which tend to be location-specific and diffuse in nature. Regulations and supports have proved easier to implement than taxes in encouraging greener activities among agricultural producers. There may be wider scope for the application of taxes and charges to promote the internalization of environmental costs in agricultural production decisions, but this depends on clearer definitions of property rights. In the agricultural sector, different types of rights – access and use rights, control rights and transfer rights – co-exist and are attached to various types of land ownership (Table 6). In many countries, farmers have retained broad implicit or customary rights to the use of land, water and other natural resources. These embedded rights plus the fact that agriculture is a non-point source of pollution make it difficult to implement taxes and charges on agricultural inputs and practices. Defining property rights, uses and misuses would help governments determine where farmers should be held liable at their own cost for environmental damage and also facilitate payments for environmental services
