an oecd perspective on using agri-environmental indicators for policy analysis

Directorate for Food, Agriculture, and Fisheries 1

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES

OECD OCDE

An OECD Perspective on Using Agri-Environmental Indicators for

Policy Analysis

Wilfrid LeggPolicies and Environment Division, Agriculture Directorate

INFASA Symposium16 March 2006, Bern, Switzerland

Outline of presentation

• Using indicators for policy analysis

• What the OECD is doing

• Which challenges lie ahead

Using indicators for policy analysis

Background

• Abundant food supplies in OECD countries

• High public concern of farming’s environmental impact

• Governments also want better environmental performance

• Global trade and environment commitments are key drivers

• Markets for environmental goods are absent or function poorly

• Significant support given to the agricultural sector

• Agriculture only contributes 2% of GDP and 6% of employment, but

accounts for 38% of land and 46% of water use

• Agricultural output up 5% since 1990, land down 4%, labour down 10%,

but water use up 3% and energy 6%

Focus of OECD indicator work

• Predominantly measured at national level

• Stress on linking science and policy

• Close co-operation with governments

• Concern to balance indicators that are

“scientifically sound” yet “policy practical”

Policy context

• High levels of support, but decline in share from

output to area-based and targeted policies

• Wide range of commodity and country support

• Heightened public awareness and concern

• Global trade and environment commitments

• Significant environmental regulations

• On-going technical innovation and adoption

Composition of farm support (PSE)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004p

Other paymentsPayments based on input constraintsPayments based on historical entitlementsPayments based on area planted/animal numbersPayments based on input usePayments based on outputMarket price support

0%

20%

40%

60%

80%

100%

Japan Switzerland EU USA

MPS Direct Payments Agri-environmental payments

On average only 4% of support directly goes to the agri-environment

Indicators can help monitor policies…

• Track environmental performance

over time and across countries

(league tables)

• Identify possible environmental risks in

future (red alert)

…model policies…

• Model potential policy impacts on the

environment (ex ante)

• Analyse and evaluate actual policy

impacts on the environment (ex post)

….and rank policies:

• Rank different policy measures

according to their effectiveness in

improving environmental performance

and economic efficiency

• Identify characteristics of good policy

practice (recommendations)

What the OECD is doing

Since 1993 OECD has been developing indicators that are:

• Policy Relevant – across OECD

• Analytically Sound – science based

• Measurable – data availability

• Easy to Interpret - unambiguous

Indicators have focused on:

• Concepts and framework - 1997

• Issues and design - 1999

• Methods and results - 2001

• Results and policy use - 2006

2006 report will cover:

• Agri-environmental indicators for nutrients, pesticides, soil, water, air, biodiversity, farm management

• Developments in other indicator areas

• Country trends:

i. Agricultural sector trends and policy context

ii. Environmental performance of agriculture

iii. Overall agri-environmental assessment

• Using indicators as a policy tool

Past work on qualitative analysis…

• Output linked policy measures have the biggest potential

effects on encouraging production

• Output linked policy measures - encourage intensive production

and use of sensitive land – but maintain some farm systems

and production associated with environmental service provision

• Production controls, cross-compliance and agri-environmental

taxes/payments can diminish the harmful environmental impact

of commodity support

• But improving environmental performance would be less costly

without commodity support measures

But quantitative analysis is underway…

• Modelling agricultural policy changes on production is well-

established, using General Trade Analysis Project model

• Modelling comparative impacts of different policy measures on

production uses OECD’s Policy Evaluation Model

• Modelling impacts of changes in farm production (and

practices) on the environment is at a relatively early stage

• Linking economic and ecological models is a big challenge –

aggregation, choice of environmental indicator, interpretation…

…and OECD is modelling policy and environment linkages

• Farm level modelling approach using Finnish data,

then Swiss, US and then, hopefully, Japan

• Comparative analysis of different agri-environmental

settings and policy measures

• Modelling the effects of policy measures (agri-

environmental and area payments, taxes, buffer

strips…) on the environment (nutrient run off and

biodiversity), farm incomes and government

budgets using the OECD’s Stylized Agri-

environmental Policy Impact Model (SAPIM)

…and results using GTAP show:

• Effects of trade liberalisation scenarios on the environment

in the dairy and arable crops sector using the General Trade

Analysis Project (GTAP) that….

• overall, trade liberalisation generates net environmental

benefits because the reduction in environmental pressure in

countries where production falls is greater than the increase

in countries where production rises, but…..

• to maximise benefits, trade liberalisation needs to be

accompanied by targeted environmental measures to deal

with externalities and public goods

…but too early to show SAPIM results

• Results of the Finnish (crop) model are being finalised

• Work is starting on the Swiss (dairy) model

• Discussions are underway on the US (crop?) model

• Synthesis of results and policy implications due in 07-08

Which challenges lie ahead?

OECD indicator priorities

• Focus on developing indicators that are policy relevant to

most countries, but analytically weak and data not yet

comparable across OECD countries, in the areas of soil,

water and biodiversity

• Update “established” indicators from time to time in

conjunction with OECD’s Environmental Compendium

• Advance work on using OECD indicators in the SAPIM

policy model

Policy questions needing answers

• Is agri-environmental performance getting better or worse?

• What are the environmental effects of agricultural policies?

• Is trade liberalization good or bad for the environment?

• Can markets work to improve the environment?

• When should farmers pay for pollution and be paid for

environmental goods and services provided?

• Which policy measures are most cost-effective at improving

the environment with least distortion to production and trade?

Questions on indicator development

• How comparable should indicators be for policy modelling, or

to track trends across countries?

• What scale (level of aggregation) is appropriate for policy

analysis?

• How many indicators are needed to properly assess

environmental performance – and how should they each be

weighted in the absence of money values?

• How much measurement is needed to design and implement

effective policies?

Finally……..

“Not everything that can be counted counts, and not everything that counts can be counted” – Einstein

“In the absence of facts, anyone’s opinion is a good one. And the biggest opinion usually wins!”

“You cannot manage what you cannot measure”

Thank you for your attention

Wilfrid.legg@oecd.org

www.oecd.org/agr/env