reforming ag subsidies[1]

8/14/2019 Reforming Ag Subsidies[1]

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ANTONIO LA VINA

LINDSEY FRANSEN

PAUL FAETH

YUKO KURAUCHI

W R I W H I T E P A P E R

REFORMING AGRICULTURAL SUBSIDIES

No Regrets Policies for Livelihoodsand the Environment


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W R I W H I T E P A P E R

REFORMING AGRICULTURAL SUBSIDIES:

NO REGRETS POLICIES FOR LIVELIHOODS AND THE ENVIRO

Antonio La VinaLindsey Fransen

Paul Faeth

Yuko Kurauchi


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JEN LESAREDITOR

HYACINTH BILLINGSPUBLICATIONS DIRECTOR

MAGGIE POWELL

LAYOUT


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Contents

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SETTING THE STAGE: AGRICULTURE, POVERTY, TRADE AND THE ENVIRONMENT . . . . . . . . . . . . . . . . . . . . . . . . . .

WHAT ARE THE IMPACTS OF AGRICULTURAL SUBSIDIES ON THE POOR AND THE ENVIRONMENT? . . . . . . . . . . . . .

What are the Impacts in Developed Countries?

What are the Impacts in Developing Countries?

REFORMING DEVELOPING COUNTRY SUBSIDIES: POTENTIAL CONSEQUENCES FOR LIVELIHOODS

AND THE ENVIRONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impacts in Subsidizing CountriesImpacts in Developing Countries

THE ROLE OF A DOMESTIC POLICY REFORM AGENDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Empowering Small-Scale Farmers to Use and Protect Natural ResourcesMainstreaming Poverty Alleviation and Environment

Protecting Ecosystems for Human Well-beingBest Practices in Governance

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


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This White Paper was produced as part of the WorldResources Institutes Poverty, Agriculture and TradeObjective. An earlier version of this publication, enti-tled Beyond The Doha Round and the AgriculturalSubsidies Debate: Toward a Reform Agenda for

Livelihoods and the Environment, was launched at thefifth ministerial meeting of the World TradeOrganization in Hong Kong in December, 2005.

The authors gratefully acknowledge colleagues PeterVeit, Liz Marshall, and Jenny Guiling for review andrevision of this manuscript; and David Jhirad and

Frances Seymour for review and suppcation. Xander Slaski provided researThe authors and the World Resourcesextend their thanks to the reviewers oscript, Vice Yu, Ann Thrupp, and Kim

Their comments provided valuable into improve the document; the final panecessarily reflect their views.

This publication was made possible terous support of the Netherlands MinAffairs.

Acknowledgments


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REFORMING AGRICUL

EXECUTIVE SUMMARYAgricultural subsidies are among a number of factorsdetermining whether and how agriculture can helpthe poor and protect ecosystems. Reforming the cur-rent agricultural subsidies system in developed coun-tries, a central goal of the Doha Round1 negotiationsof the World Trade Organization, provides an oppor-

tunity to generate a number of positive impacts: forpoor farmers in developing countries whose ability tocompete is hampered by subsidy-driven overproduc-tion in rich countries; for taxpayers and consumers indeveloped countries faced with rising deficits; for theenvironment in developed countries where subsidiescontribute to ecosystem degradation; and, possibly,for the environment in developing countries where

poverty is one driver of environmental degradation.But an agreement to reduce subsidies at the interna-tional level does not guarantee that the poor and theenvironment will benefit; the realization of benefitswill require the implementation of strategic domesticpolicies in developing nations.

Even in the absence of subsidy reduction through the

Doha Round, countries can take steps to make agri-culture work for the poor and for the environment.Without a WTO agreement, there will still beimmense pressure on developed countries to reducetheir agricultural subsidies: from developing coun-tries, which are expected to file more cases in theWTO challenging these subsidies, and from withindeveloped countries because of domestic or regional

(in the case of the European Union) competition forscarce budgetary resources. Moreover, without a newWTO Agreement, trade-induced changes that affectagriculture are inevitable, whether they come in thecontext of global, regional, or bilateral trade agree-ments or through sheer market changes. Domestic

Trade can be an effective vehicle(Cline 2004), but good governantional and national levels, is necincreased trade benefits the poorminimizes ecosystem degradatioWhite Paper examines what refocountries need to implement so ize on reductions in developed crecommends that countries adopdomestic policy reform agenda tnational assessment of the potentrade decisions on ecosystem hebeing. The paper also recognizecooperation and support from deand other international organizaovercome the resource constrainby many developing countries inof such reforms. While every coudevelop its own package of reforunique physical, socio-economiccumstances, the paper identifiesaddressed by policy-makers and

These include policies designed

Empower small-scale farmersresources sustainably and streto negotiate with other actors respect to the use of land andcultural production;

Mainstream poverty alleviatio

considerations into sectoral pculture;

Promote ecosystem health forin particular ecosystems abilitial services; and


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2 REFORMING AGRICULTURAL SUBSIDIES

This reform agenda, outlined in the following pages,

is relevant to development organizations such asbilateral assistance agencies, multilateral cooperationinstitutions, private foundations, and developmentNGOs. It can serve as a guide for these organizationsfinancial and technical support for developmentparticularly for their agriculture and environment

INTRODUCTIONIn December 2005, trade ministers acials from all over the world assemblKong to attend the Sixth Ministerial Cthe World Trade Organization (WTOthey reviewed the progress since the in 2003 and made decisions leading

Laws, policies, and programs to empower poor farmers should:

Provide for rights-based land tenure policies, including agrarian

reform laws and recognition of indigenous peoples territories;

Provide a supportive environment for community enterprises,

such as production and marketing cooperatives;

Establish economic incentives for poor farmers to use land and

other resources sustainably, including direct compensation for

conservation activities, public goods, and ecosystem services;

and

Allow for payments to landowners in return for land management

that protects ecosystem services, such as water quality and car-bon storage.

Macroeconomic policies and measures that integrate poverty allevia-

tion and environmental goals should include policies that regulate:

Pricing and trading of farm products;

Property or access rights over land and water;

Taxation of land and agricultural assets;

Rural credit and insurance;

Use of agrochemical inputs;

Introduction of new technologies; and

Transport services in rural areas.

Laws, rules, and regulations related to agriculturecosystems and their ability to provide for essent

ices include:

Support for soil conservation practices that a

dation and are designed for the benefit of poo

Facilitation of crop diversification, recycling a

soil nutrients and organic matter, and ecolog

grated pest and disease management;

Flexibility and diversity in marketing standardfood stores and distributors to diversify variet

reduce wasteful cosmetic standards for foods

Reforms to promote better governance of the agr

include:

Accountable decentralization;

Establishment of inter-agency and multi-stak

agriculture; and

Strengthened enforcement of environmental la

ulations.

Policy Recommendations


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REFORMING AGRICUL

to provide economic benefits to small-scale farmersin developing countries, some elements of this trad-ing system can also perpetuate poverty. In particular,a number of academics, organizations, and develop-ing country governments argue that agricultural sub-sidies in developed countries2 contribute to poverty indeveloping countries and should therefore bereduced (WTO 2003a; Diao et al. 2005; Stuart andFanjul 2005; Vitalis 2004; Cline 2004). In fact, sever-al cases have been filed by developing countriesclaiming that certain developed countries subsidiesactually violate WTO rules. In addition, some subsi-dies are believed to exacerbate environmental degra-dation in countries where they are provided (EWG2006a), increasing pressure for subsidy reduction.Table 1 summarizes the environmental and livelihoodissues that arise in both developed and developingcountries with respect to agricultural subsidies.

unsustainable practices; for taxpin developed countries; and, deppolicies, for the environment in However, these benefits are not fact subsidy reform, if carried oualso have some negative effects, increased pressure on the envirocountries. Strategic domestic pooping countries, supported by intion, are necessary to ensure thathrough the WTO indeed result environment outcomes.

The stated purpose of the agricuunder the WTO is to correct anand distortions in world agricult2001). Specifically, parties have caddressing three issues: export saccess, and domestic support (seature, these issues are often lumterm subsidies. In this paper, wwell as protection and supportthree types of interventions in ag

In Hong Kong, negotiators madtoward agreement on the agricuincluding an agreement to end e2013, and in the case of cotton, bFor other commodities, actual amfarm subsidy cuts were not deteMembers set parameters such acountries into groups that will faof subsidy and tariff reductions. Countries (LDCs) were also giveaccess in developed countries, wimports able to enter developed duties and quotas. However, theexcludable imports could consis

Table 1: Framing the Agricultural Subsidies Debate: Issues at aGlance

Developed Countries Developing Countries

Environment Land degradation

Water pollution

Decreased agro-biodiversity

Expansion of area under produc-

tion to marginal lands to com-pensate for low prices

Difficulty investing in sustain-able practices

Poverty exacerbated by low pro-ducer prices driving exploitationof natural resources

Poverty/

Livelihoods Majority of govern-

ment subsidies tobiggest farms ratherthan small familyfarms

Higher consumerprices for protectedcommodities

Low farmer incomes due to low

world prices for agriculturalgoods

Reduced national export earn-ings

Minimal investment in ruralinfrastructure


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(ICTSD 2005; WTO 2005). WTO Members failed to

meet the April deadline, however (ICTSD 2006), andas of May 2006 negotiations on modalities were stillunderway.

This White Paper looks beyond these particular deci-sions and the Doha Round to examine the question

ently by changes in the subsidy syste

need to implement different approacment.

Section I describes the importance ofpoverty alleviation and the role that trelationship. It also discusses the bid

Agricultural support takes many forms. The following are undernegotiation in the Doha Round:

Export subsidies are benefits conferred on a firm by the government,contingent on exports.

Market access includes measures that protect domestic agricultureby limiting or otherwise restricting imports. Market access issuesrefer to tariffscustoms duties on merchandise imports which givea price advantage to similar locally-produced goods and raise rev-enues for the government; quotaslimitations on imports for a par-ticular good from a given country; and special safeguardsactionstaken to protect a specific industry from an unexpected build-up of

imports.

Domestic supportsometimes called internal supportis anydomestic subsidy or other measure that acts to maintain producerprices at levels above those prevailing in international trade. Typesof domestic support include direct payments to producers (includingdeficiency payments to make up the difference between a targetprice and the market price), and input and marketing cost reduction

measures available only for agricultural production. The WTO classi-fies domestic support into three categories according to the degreeof distorting effects on agricultural production and trade:

Amber Box: Refers to the most trade-distortin

ments, including product-specific support, su

and administrative prices, and non-specific s

insurance and support for capital and factor

this category are mandated to be reduced andnated under the present WTO regime.

Blue Box: Consists of subsidy payments direc

cal production, rather than current price and

These payments are implemented under schem

ciency payments and acreage support that lim

imposing production quotas or requiring farm

of their land. Blue Box support is deemed to b

pled from production and is not subject to WT

mitments.

Green Box: Refers to decoupled support paid

ers regardless of current production levels or

support is expected to cause little or no trade

not subject to WTO reduction commitments. T

includes support for environmental programs,

programs (e.g., research, pest control, extensiture provisions), public stocking for food secu

domestic food aid, relief from natural disaste

income insurance and income safety-net prog

Source: Adapted from UNDP 2003

Box 1

Agricultural Support and Subsidies


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tries can implement to ensure that subsidy reduc-tions benefit poor farmers and do not place addition-al pressure on ecosystems. This agenda can be sup-ported by bilateral and multilateral developmentorganizations and NGOs.

Many of the policies and measures recommended inthis paper would be beneficial even in the absence ofsignificant change in the WTO. A new internationalagreement could, however, provide new opportunitiesand incentives for domestic policy reform that elimi-nates biases against the agricultural sector andagainst the environment, unfortunate characteristicsof the policy framework of many developing coun-tries. In order for such reforms to be implemented, anew WTO agreement must maintain adequate policyspace and flexibility for developing countries(Gallagher 2005). Nothing in the current WTO agree-ments, and in the anticipated potential Doha deci-sions, should prevent countries from increasinginvestments in human capital, land tenure, wateraccess, technology, infrastructure, nonagriculturalrural enterprises, organizations of small farmers, andother forms of social and political capital for poor andsmall scale farmers and their communities (Diaz-Bonilla and Gulati 2002-2003). These investmentswill help protect a healthy natural resource base,essential to the long-term viability of agriculture, andwill benefit poor farmers, rural communities, andsociety as a whole.

I. SETTING THE STAGE: AGRICULTURE,POVERTY, TRADE AND THE ENVIRONMENTPoverty, agriculture, environment, and trade are fun-damentally linkedphysically, ecologically, socio-eco-nomically, and ultimately at the policy level. Whilethese linkages exist in all countries the connections

surviving on less than US$1 a da2001). The Food and Agricultureestimates that there were 842 mished people in the world in 199million living in developing couin countries with economies in t2004). Worldwide, almost 80 pelive in rural areas and depend onsource of livelihood (Clay 2004)Projects Task Force on Hunger ure, stating that about half of theished are small farmers, 20 percdwellers, 10 percent are pastoraland the remaining 20 percent ar(Mayrand et al. 2005).

Substantial reductions in povertthe farming population would hdeveloping countries national ehistorically, [a]ll reported rapid spread poverty started with livelienhanced through agricultural tr(DFID 2002). Additionally, in mtries agriculture is a primary souexchange earnings (UNDP 2003agricultural production is an impoverty alleviation, it also has imenvironment. Agriculture is promost powerful influence on envmost developing countries (Schaccounts for most land use and mental variables such as water qquality and movement, natural vbiodiversity. In countries of the Economic Co-operation and Devagriculture is the single largest usource of pollution (Clay 2004).


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cycling. In more intensively cropped systems, plant-ing hedgerows along contours can minimize erosionon hillsides (McNeely and Scherr 2003). Some agri-cultural lands, if managed properly, can helpsequester greenhouse gases from the atmosphere(Clay 2004).

The relationship between agriculture and the envi-ronment is complex and bidirectional: while agricul-ture can degrade ecosystems, degraded ecosystemsalso erode the viability of agriculture, with importantimplications for poverty. More than half of theworlds poorest people live in ecologically vulnerable

i li ifi i d h d

mentally sustainable, special attentioto how trade, both domestic and globthe sector. Barriers to markets (physiand legal) and unfair competition restrade-distorting policies are principalmaximizing agricultures role in poveTrade can have both positive and negthe environment. A 1997 report exam

ronmental impacts of trade expansioAmerica and the Caribbean, for examthat trade-led growth creates both chopportunities for environmental quaresource conservation (Faeth and McChallenges arise from the rate and mresource extraction in sectors includiforestry, and fisheries, and in industrmining, petroleum, and food processare also opportunities, enhanced by ttrade creates, to respond to environmin these sectors. In addition, the remtorting policies may in itself have somtal benefits. The 1997 report developples for sustainable trade policy, desc

At the national level, reforms are neeing countries to accelerate removal oand economic isolation of poor farmevents direct involvement in trade andlocal, national, and global levels. Withreforms, success in making internatimore equitable would have minimal ground. For farmers engagement wisustainable, attention must also be prect effects of trade on the environmechanges in agricultural patterns and accompany evolving market opportun

Box 2

Principles for Sustainable Trade Policy

1. Whenever trade and environmental policy issues intersect,both sets of policies should be adjusted so as to maximize thecomplementarity of trade reform and environmental sustain-ability.

2. Sustainable economic growth will require environmental dam-ages (externalities) to be explicitly recognized and, where pos-sible, reduced or eliminated (internalized) through the appli-cation of the polluter-pays principle or other environmentalpolicy reforms that emphasize pollution prevention.

3. The uncertainty and rapid change of economic and environ-mental indicators demands a no-regrets, proactive set oftrade and environmental policies that will prove beneficial

regardless of what happens internationally.

4. Implementing both trade and environmental reforms willrequire much clearer definitions of property rights respectinggoods and services as well as infringements of those rights bybads and disservices, including environmental pollution.

(Faeth and McGinnis 1997)


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and roughly six times the value of all official develop-ment assistance provided by these countries to devel-oping nations (Greig-Gran 2003). The US$300 bil-lion figure refers to total agricultural support, includ-ing direct payments to farmers as well as importrestrictions and other government interventions suchas research and development (Elliott 2004). Of sup-port that is considered most trade-distorting, OECD

countries are estimated to have spent approximatelyUS$180 billion a year between 2001 and 2003 (Elliott2004). Agricultural subsidies in OECD countrieshave remained high and have not been substantiallymodified for the past two decades (Anderson andMartin 2006), despite the facts that agriculture repre-sents a small share of national income for thesecountries and that farmers represent a relativelysmall percentage of these countries populationsabout 2.6 percent of the labor force in the UnitedStates and 4.4 percent in Europe (IFPRI 2003).

WHAT ARE THE IMPACTS IN DEVELOPED COUNTRIES?

While the original goals of subsidizing agriculturewere to facilitate the economic viability of small fami-ly farms and to ensure national food security, the cur-rent subsidy system is far removed from this vision.The distribution of support is uneven and is signifi-cantly skewed in favor of larger farmers and agribusi-ness with capital-intensive, highly mechanized opera-tions on vast commercial estates rather than smallfarmers considered poor by developed-country stan-dards (Cline 2003). The WTO Annual Report of 2003estimates that in the EU, United States, Canada, andJapan, the largest 25 percent of farms3 receive 70 per-cent, 89 percent, 75 percent, and 68 percent of totalagricultural subsidies, respectively (WTO 2003b). Inthe United States, 60 percent of farmers are providedno support at all while the largest 7 percent account

policies. For example, it is estimU.S. sugar producers cost consubillion in 1998 alone (GAO 200

Many agricultural subsidies alsomental damage resulting from aoped countries (Vitalis 2004), astypes of crops that farmers grow

ernment support. The Commod2002 U.S. Farm Bill, for examplvides payments for certain cropsfeed grains, cotton, rice, and oilsThis focused support gives farmto grow program crops over othintensive row crop production wof biodiversity and damage to so

Box 3

U.S. Farm Bill

The United States 2002 Farm Security amore commonly known as the 2002 Farmgenerous farm subsidy package in U.S.

production and depressing internationa2003a). The 2002 Farm Bill marks a comvious trend toward lower farm subsidiesstimuli promoted by the U.S. Congress tBill, the 1996 Freedom to Farm Act. It pbillion, an increase of US$83 billion ovedomestic farmers over 10 years in the foconservation, rural development, and fo2002; Sumner 2003a; Commission for A

The 2002 Farm Bill is scheduled to be re2007. The House Agricultural Committeestakeholder groups started preliminary dings for the 2007 Farm Bill in 2005. Oppreform the bill to provide lower governme


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(Keeney and Kemp 2004). In the Farm Bill, somepayments are also tied to yields, encouraging farmersto produce more of a certain crop than they otherwisewould or to bring marginal land into production,increasing pressure on the environment (Mayrand etal. 2003). As early as 1991, U.S. farm policy wasshown to inhibit the use of resource-conserving agri-cultural practices by making such practices appear

less profitable (Faeth et al. 1991). Subsidies can alsoencourage the use of large amounts of chemicalinputs in farming. This is illustrated in a 2006 reportthat linked the dead zonean area in the Gulf ofMexico where annual algae blooms cause a lack ofoxygen in the water that kills marine lifewithexcess fertilizer use in heavily subsidized cropland inthe U.S.s Mississippi Basin (EWG 2006a). Subsidies

on inputs, particularly irrigation water, can lead tocropping decisions that would not take place in apurely competitive market, and subsidized watertends to be inefficiently used (Mayrand et al. 2003).

At the same time, some subsidies are designed toproduce positive environmental outcomes and aregenerally not thought to be trade-distorting. Theseinclude conservation or land retirement programsunder the U.S. Farm Bill and rural development pro-grams in the EU Common Agricultural Policy (CAP).These types of subsidies are important because theyprovide incentives to improve the sustainability ofagricultural practices, but they make up a relativelysmall percentage of agricultural support. The EUCAP, for example, despite placing ever greateremphasis on rural development and environmentalobjectives, allocated only 10 percent of its budget tothese measures from 20002006 (EuropeanCommission 2004; Bendz 2004).

ward trend of world market prices focommodities over the past several detrend has had some positive effects isumers may enjoy lower prices for sumodities. However, it also means thaproducers receive lower prices for thethey would in the absence of dumpinstrain(s) agricultural growth and deve

tunities in non-OECD countries (WTAmong developing countries, smalleSouth and Central America, the CariSaharan Africa suffer the most, losinpercent of total agricultural and agroincomes due to developed country sual. 2003).

Developed country subsidies have a pstrong poverty impact when they are crops that are also grown in developisince developing-country farmers mudirectly with the subsidized developeers. Cotton, which is heavily subsidizand several other countries, is one sureceived substantial attention. As therized below show, subsidies provideders in developed countries reduce woprices, generating losses for lower-inducing countries.

Research indicates that cotton subsidcountries cause the loss of up to US$every year in West and Central Africawhere an estimated 10 million peoplfor their livelihood (Oxfam 2004). A International Food Policy Research Inindicated that in Benin a 40 percent farm-level cotton prices leads to a 21 tion in income for cotton farmers an


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cotton programs were illegal. In research gathered forthis case, Brazil documented a loss of US$638.5 mil-lion in a one-year period in income, trade balance,related services (transportation and ginning), federaland state revenues, employment, and the federalbudget as a result of low prices caused by U.S. cottonsubsidies (ICAC 2002).

Sugar is another protected or subsidized crop that isgrown in both developed and developing countries.From 1999 to 2001, support to OECD countriessugar producers averaged US$6.35 billion dollars,just slightly less than the combined value of develop-ing country sugar exports, which total about US$6.5billion annually (Mitchell 2004). Due in part to thissupport, the share of developed countries exports in

the world sugar market has risen, while the share ofsugar exports from developing countries declinedfrom 71 percent during 198085 to 54 percent in19952000 (Mitchell 2004).

In addition to their poverty impacts, developed coun-try subsidies may have indirect environmental effectsin developing countries through their effects on pro-ducer prices, which could influence farming practicesand overall poverty in rural areas. Responses to lowprices include shifting production from unprofitablecrop(s) to other commodities, decreasing production,or ceasing farming altogether. In West Africa, forexample, some farmers shifted to livestock produc-tion or subsistence farming to feed their familieswhen cotton prices dropped (Pfeifer et al. 2004).Depending on which farm commodities experiencedecreased production and which ones see anincrease, these changes in farmer choices could havenegative, positive, or neutral environmental impacts.

In some cases farmers cannot or do not decrease

unprofitable crop, such farmers production in the hopes that thisleast partially, for lower prices (AThe environmental effects of greinclude bringing marginal and ped land into production, increaschemicals, and reducing fallows2005).

Poverty itself affects the environpeoples direct reliance on the nIt can also prevent farmers fromsustainable practices, either becafunds for investment, or becausinvestment may not be sufficienexpense. For example, WWF pre

more than 60 percent of total wZambia, Zimbabwe, Mozambiqube used to irrigate sugarcane. Thfit from investing in more efficieirrigation practices, but it will onit earns more from sugar (WWFwhich is currently kept low by Eprofits would not only generate used for irrigation, but could alstive to improve infrastructure. Wprices are not the only conditionmore sustainable practices, theyimportant factor influencing praments within the sector.

III. REFORMING DEVELOPSUBSIDIES: POTENTIAL CFOR LIVELIHOODS AND EDeveloped countries are being ptheir trade-distorting agriculturadomestic and international inter


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dies that distort trade and place developing-countryfarmers at an unfair disadvantage on the world mar-ket (Pfeifer et al. 2004; Oxfam 2002; WTO 2003b).

IMPACTS IN SUBSIDIZING COUNTRIES

Within developed countries, subsidy reform has thepotential to bring economic benefits to taxpayers,

consumers, and, if implemented carefully, to small-scale farmers. In the case of the U.S., subsidy reformcould play a role in addressing a growing nationaldeficit (Thompson 2005). Reforming agriculturalsupport could save domestic consumers moneyforexample, U.S. sugar costs more to produce than inmany developing countries (Mitchell 2004), but cur-rent policies protect it from competition and keep

consumer prices high. Strategic policy changes couldlead to fair commodity prices from the marketplacethat contribute less to concentration than the currentsystem of government support, and create moreopportunities for small family farmers (Ray et al.2003).

Subsidy reform is also an opportunity to generate

environmental benefits: reducing payments for a setgroup of commodities, for example, could result indeclining production of program crops and encour-age farmers to diversify their production. Shiftingsupport into conservation programs would alsoincrease opportunities for farmers to implementmore sustainable practices on land currently in pro-duction, or to set aside land for wildlife habitat orother environmentally beneficial purposes.

IMPACTS IN DEVELOPING COUNTRIES

Developing countries also stand to gain from devel-oped country subsidy reductions but while reduc

decline in the availability of cheap, suimports. The environmental effects otion for developing countries are alsodepend heavily on the policy context.exists for environmental degradationrequiring interventions at the domesate the way in which farmers respondopportunities. At the same time, sub

could create enabling conditions for ronmental protection, or the effects c

What are the poverty impacts of reducing su

Over the past several years, a numbeexercises have attempted to predict thcultural trade liberalization on povert

ing world. Estimates of the total potefor developing countries in agricultued with the full elimination of protecsidies in industrialized countries agrtered close to US$10 billion (AndersoDiao et al. 2005; Hertel and Keeney 2ure includes elimination of all three tural protection: domestic support, ex

and market access. Many studies shotions in barriers to market access genity of gains to developing countries, wfrom reductions in domestic supportsmaller (Anderson et al. 2006). Loweprotection in developing countries cabenefits to farmers (Ackerman 20052005).

In addition to modeling the global eferalization throughout the agriculturfocused research has been carried oumodities of particular importance to tries such as cotton and sugar Accor


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ers, which could stimulate a rise in production inthese countries and contribute to poverty alleviation.According to analysis by the Department ofAgricultural and Applied Economics and CottonEconomics Research Institute at Texas TechUniversity, the majority of gains from a reduction inU.S. subsidies and subsequent price increases wouldaccrue to Brazil, followed by Australia and countries

in Africa (Pan et al. 2004). Analysis for Brazil indi-cates that both production and exports would rise inresponse (Pan et al. 2004). In the Cotton Initiativesubmitted to the WTO in 2003, the delegations fromBenin, Burkina Faso, Chad, and Mali state that [i]f[U.S. cotton] subsidies were eliminated, cotton pro-duction in West and Central African countries wouldbe highly profitable and could act as an important

catalyst for poverty reduction in the countries con-cerned (WTO 2003b).

While subsidy reduction in developed countries maylead to economic gains at the national level in devel-oping countries, these benefits may not necessarilybe enjoyed by poor farmers. Rural smallholders andlandless farm laborers, usually the poorest members

of society, are often marginalized in terms of theiraccess to land and water resources, information, mar-keting infrastructure, farm credits and inputs, andother government supports (Watkins 2003). Thus,even if producer prices do increase, small farmersmay not see their own earnings rise in proportion:Lack of competition among traders, remote geogra-phy, poor infrastructure, and high transport costs canall prevent the transmission of border price changesto intended beneficiaries (World Bank 2005).Additionally, if a crop affected by subsidy reduction isgrown predominately by large, relatively well-offfarmers, then the effect of changes in producer priceson rural poverty may in fact be modest (Minot and

portionately to farmers in these (Mayrand et al. 2005). See Box 4a reduction in U.S. cotton subsidpoverty in Brazil and West and C

Like cotton, sugar is important tcountry economies and is heaviloped countries where it is produ

sugar market indicate that reducments to OECD producers and lrestrictions would affect the worthrough changes in market pricesugar consumption, reduction odeveloped countries, and creatio0.8 to 2.0 million workers in de(WWF 2004). Low-cost, highly c

ducing and exporting countries Australia, and Thailand are expemost, with Brazilian exports inc(Sheales et al. 1999). Consumerthe sugar sector is heavily protecfit: while prices paid to producersugar prices for consumers are epercent in Japan, 40 percent in t

cent in the United States (Sheale

However, removal of protection losers along with winners in tSmall-scale sugar producing couduction costs such as Cuba, Beliand Fiji would be hit particularlyElliott 2005). These countries, wfor a significant share of total exlack the political, legal, socio-ecotional conditions necessary to exopportunities effectively. Countrenjoy preferential access to Euromarkets would also face losses f


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et al. 2005). Other potential losers include netimporters of sugar, as removal of sugar subsidies isanticipated to result in an increase of world sugarprices of 30 to 70 percent6 (Garside et al. 2005;Mitchell 2004). Where preferential access is an issue,governments and producers will need to prepare forthe new conditions that could arise through liberal-ization.

The removal of agricultural subsidies could have anadverse impact on poor net food-importing countries,as well as on poor net consumers, typically urbandwellers. This is because food prices may go up inreflection of higher producer prices According to

ty overall, it is likely that if industrwere to substantially reduce their prosidies, most Third World farmers womore food and agricultural goods doming to expanded incomes not only in sector but in the rest of the economyal. 2005).

What are the environmental impacts of subs

The effects of developed-country subon ecosystems in developing countripredict and have not been thoroughlysid d ti s lts i isi ld

Cotton production in Brazil, along with a number of other agricultur-al commodities such as soy and livestock, is primarily carried out bylarge-scale, mechanized farming operations (ICAC 2002). The suc-cess of agribusiness has contributed to overall economic growth inBrazil, but outcomes for the poor and for the environment have been

mixed. Structural changes in the agricultural sector favoring largefarms have increased production and export earnings, but they haveplaced smaller, poor farmers under increased competitive pressure(OECD 2005). Not only can this increase rural poverty, but the expan-sion of large farms can have the effect of pushing small-scale farm-ers off agricultural land and into ecologically vulnerable areas suchas the Cerrado (savannahs) and Amazon (WWF 2003). Thus, if sub-sidy reductions in the U.S. create incentives for increasing cotton

production in Brazil, special safeguards may be necessary to ensurethat the reforms indeed allow small-scale farmers to benefit alongwith larger operations, and that the environment is protected.

Unlike in Brazil, the majority of cotton produced in Africa is grown bysmall-scale family farmers, meaning that an improvement in thecotton market is more likely to have a direct impact on poverty by

raising the incomes of the rural poor (Pfeifer et aDaniels 2002). However, if markets are difficult tinefficient bureaucracies or inadequate infrastruparticularly resource-poor onesmay be unable tage of increased world prices. If farmers in Afric

talize on higher prices and increase their productronmental impacts could also occur along with bhoods. While cotton is responsible for huge amouwater use in many countries where it is producedenvironmental impacts in Africa are generally lestion in this region is currently carried out with miinputs, irrigation, or machinery. However, anecdoto cotton as a driver of deforestation in areas wh

grown (Brottem 2005). Furthermore, if cotton prodmore profitable, it is possible that it will also becor result in unsustainable additional habitat convminimize impact on the environment on which mincluding cotton farmersdepend, special domebe required. Examples of measures to reduce negand poverty impacts are discussed in Section IV.

Box 4

The Case of Cotton in Brazil and West and Central Africa


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REFORMING AGRICUL

As world agricultural commodity prices rise as aresult of developed-country subsidy reduction, farm-ers in developing countries may choose to furtherincrease their incomes by producing more of thecommodity in question. A corresponding rise inecosystem degradation related to agriculturesuchas pollution from fertilizer and pesticide usecouldbe expected, as well as conversion of nonagricultural

land such as currently forested areas (OECD 2000).In an alternative scenario, farmers may respond byswitching production to crops made more profitableby subsidy reduction. Depending on the relative envi-ronmental effects of crops being abandoned versuscrops for which production increases, net impact onthe environment could increase or decrease, or evenremain the same while environmental effects simply

shift from one type to another. This was the casewhen Costa Rica carried out structural adjustmentprograms during the 1980s and 1990s, and the coun-try shifted away from livestock and grain productiontoward the production of export crops such as fruits.While soil erosion and compaction declined, the useof agrochemicals and loss of biodiversity increased,thus reallocating environmental degradation from

one set of issues to another (Lojenga 1995).

While subsidy reduction could adversely affectecosystems in developing countries by encouragingincreased production, it could also indirectly benefitthe environment in developing countries through itscontribution to poverty reduction. If farmersincomes go up, they will have a greater capacity to

use more environmentally friendly production tech-niques and to make conservation-type investmentsthat increase long-term productivity (Lutz 1992).Other positive trade-related impacts could includeimproved infrastructure, sharing of new manage-ment techniques and access to new and adapted

In addition to the effects on ecoscountries, changes in agriculturtrade patterns will influence theenvironmental effects of trade liproduction shifts from developetries, for example, agricultural pcountrieswhich tend on averasivewould become more preva

the more environmentally damadeveloped countries would decreenvironmental improvements on(Anderson 1991). At the same timcountries overall tend to have mecosystems, the environmental ecould be proportionately more dcountries than in developed cou

conversion has already occurred

The actual impact of subsidy redtems that can be expectedat a scaleis far from clear, and muresearch is necessary in order tothese changes. For developing colenge is to find a balanced appro

ers to improve their livelihoods wagricultures environmental imption proposes a domestic policy assist developing countries in rereduction and making agriculturof both livelihoods and ecosystem

IV. THE ROLE OF A DOMEREFORM AGENDAInternational agricultural policy ally mandated subsidy reductiontries, can contribute significantly

t i i lt H


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the gains accruing to winners (World Bank 2005).Because subsidy reductions could lead to the expan-sion of agriculture and increased production in anumber of countries where there is a concentrationof both poverty and biological diversity, it is impor-tant to anticipate the poverty and environmentalimpacts in those areas. The possibility that therecould be adverse poverty and environment effects in

some countries, however, is not a justification forcontinuing the status quo on subsidies in developedcountries, given the potential for subsidy reduction tobring substantial livelihood benefits to many develop-ing countries as well as positive economic and envi-ronment impacts to developed countries.

To enhance the benefits of agricultural subsidy reduc-

tions for the poor and for the environment, and toeliminate or mitigate potential negative impacts,developing countries would be wise to implement adomestic policy reform agenda based on an integrat-ed assessment of the potential impacts of global tradedecisions on ecosystem health and human well-being. A framework for such an assessment can bedeveloped using the experience of the Millennium

Ecosystem Assessment (MA)7 and should include thefollowing elements:

A central focus on human well-being;

Recognition of the intrinsic value of biodiversityand ecosystems;

Particular attention to the linkages between ecosys-tem services and human well-being;

Acknowledgement of the dynamic interactionbetween people and ecosystems, wherein eachdirectly and indirectly drives change in the other.(MA 2005)

trial firms? In the case of the latterers benefit?

In those countries and regions whbenefit, agriculture will presumabWhere will expansion occur, and ait occur through intensification, exboth? How will forests and other c

tems be affected by expansion? What are the direct and indirect im

tural expansion on ecosystem servnegative impacts, who will bear thexample, if water supply is affectedmunities be the ones who lose acc

What policies are needed to avoid

adverse poverty and environment what sorts of trade-offs between thbe required? What are the incentivments to adopt and implement the

While each country will need to deveage of policy reforms to address the abased on its unique physical, socio-ecpolitical circumstances, this paper idcommon areas to be addressed by posupported by donors in order to ensureforms generate pro-poor and pro-enimpacts. These include policies inten

Empower small-scale farmers to uresources sustainably and strength

to negotiate with other actors in threspect to the use of land and othecultural production;

Mainstream poverty alleviation anconsiderations into sectoral plans culture;


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REFORMING AGRICUL

tect the environment. The fourth type of reform, fol-lowing best practices in environmental governance, isan enabling step that is necessary for the effectivedevelopment and implementation of the other threerecommendations.

and decisions, illustrates the potand environmental outcomes of trade reforms (see Box 5).

EMPOWERING SMALL SCALE FARME

Table 2. Possible Effects of Subsidy Reduction and Policy Responses

Possible Effect

of Subsidy Reduction Policy Recommendation

Environmental Benefits

of Policy Reforms Poverty Benefits of

Large-scale or higher-income farmers may beable to take advantageof new opportunities andhigher prices, at the expense

of small-scale and poorfarmers

Empower Small-Scale Farmers

Secure land tenure Farmers are more likely to con-serve their land and practice sus-tainable techniques if they know

the land will not be taken fromthem

Greater security encmore productive cro

Support community enterprises andorganizations

Community organizations can beeffective means for teaching andpromoting sustainable agriculturetechniques

Organizing for beneallows small-scale producers by streamcosts

Higher international pricesmay not mean that smallfarmers will receive higher

prices

Mainstream poverty and environment into planning in the agriculture sector

Invest in infrastructure (e.g., roads)

to ease market access; technologyand tools necessary for sustainablepractices; and information systemsto help farmers get fair prices

Investment in new technology and

tools can help farmers useresources more efficiently andprotect their land

Decreasing isolatio

technology and infoproduction and recethat are closer to ac

Land conversion (extensifi-cation) may result as aconsequence of increasedproduction

Promote ecosystem health for human well-being

Enforce land use laws and protectedareas within a national strategy tosupport small farmers

Land use laws and enforcementshould prevent or at least mini-mize ad hoc agricultural expan-

sion into environmentally sensi-tive areas

Where possible, lanopportunities for potion in certain areas

carefully around seing stakeholders in

Intensification/increasedchemical use could occurwith greater production

Provide incentives for and investin sustainable agriculture; payfarmers for provision of ecosystemservices and soil conservation (seekdonor support, e.g., under multilat-eral environmental agreements)

Economic incentives should resultin more environmentally friendlypractices even while increasingproduction

Payments for ecosysfarmer incomes


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prices at the expense of small-scale and poor farmers,unless specific policies are adopted that position thelatter to benefit from the changes. It would indeed beironic if globally mandated subsidy changes, under-taken in the name of development, resulted in evengreater marginalization of poor farmers.

Agriculture is often one of the few livelihood strate-gies available to the rural poor, providing small farm-ers with food and income as well as safety nets dur-ing economic downturns. Rural poverty cannot bereduced unless poor farmers are in fact empowered

small farms provide essential ecosystsociety (Rossett 1999).

Examples of pro-poor policies that coinclude those which implement rightenure; agrarian reform policies; and

support community enterprises and ic incentives for poor farmers.

Access to land and security of tenurements in poverty alleviation and sustment Secure land tenure can help po

Soy is a major source of income for a number of countries in SouthAmerica, namely Brazil, Argentina, and Paraguay. It is not surprisingthat these countries have encouraged the expansion of soy, due to itseconomic benefits. For example, driven by export demands fromEurope and government credit programs such as Moderfrota that

facilitated access to agricultural machinery (Brando et al. 2005),Brazil increased its production of soy by 85 percent between 1993and 2002. In 1940 there were only 704 hectares of soy fields; by2003 there were 18 million hectares. Predicting continued expansion,Brazils Minister of Agriculture has estimated that Brazil will over-take the U.S. in soy production in the next 10 to 20 years (WWF2003).

The expansion of soy production has ecological and social costs, asit sometimes contributes to the destruction of forests and savannahsof high conservation value. Half of Brazils soy production takesplace in the Cerrado, a savannah area of 200 million hectares cover-ing 23 percent of Brazil. It has the greatest biodiversity of anysavannah in the world, providing habitat to approximately 90,000insect species, 40,000 fungi, 550 kinds of birds and 150 mammalspecies. Much of this rich habitat has been transformed into soy

fields (WWF 2003). In 2002, 16 percent of the Amazon forest had dis-

appeared, and was being cut down at a rate of 7day, mostly to make room for cattle and crops, es2003). Some of these soy fields are in fact replacrather than virgin Cerrado or Amazon forest, thusdriving land conversion (Brando et al. 2005). Ho

sion of soy into these former pastures may in facers and small-scale farmers out of production or habitats and thus still contributing to deforestat

A number of organizations have established initiacal solutions to the social and environmental impsion. For example, in March 2005, at the first ConRoundtable on Sustainable Soy in Foz do Iguau,

agreed to work toward solutions to reduce the imsion, including developing and promoting responThey also agreed on an open, transparent, multi-ipatory process to deal with the challenges posedThe conference attracted more than 200 people rbusinessfrom small to big producers, feed milproducers, and retailersand social and environtions (WWF 2005).

Box 5

Soy Expansion in Brazil


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REFORMING AGRICUL

reforms of this nature directed at strengthening thetenure of poor farmers are needed in many countries(WRI 2005).

Agrarian reform laws that redistribute land accordingto equity principles, such as land to the tiller, andthe recognition of ancestral domains of indigenouspeoples are also examples of policy reforms that

could be adopted to give small farmers more secureland tenure (La Vina and Fransen 2006). In mostdeveloping countries, the poorest peoples are thelandless in rural areas. Together with the land-poor(those whose poor-quality plots are too small to sup-port a family), they make up the majority of the ruralpoor and hungry. Addressing the lack of access toland and to tenure security is critical for both equity

and sustainability, and research has illustrated thesustainable development potential of agrarian landreform that empowers small farmers: Small farmersare more productive, more efficient, and contributemore to broad-based regional development than dothe larger corporate farmers who hold the best land(Rossett 2001).

Another means of empowering poor farmers is tosupport community efforts to organize economicallyand politically. Community enterprises, such as pro-duction and marketing cooperatives, can be strength-ened so that poor farming communities can bettercompete with wealthier producers (WRI 2005). Insome cases, it might be appropriate to implementpolicies that provide economic incentives to poor

farmers so that they manage and conserve land andnatural resources used for agriculture. An example isa law that allows for direct payments to landownersin return for land management that protects ecosys-tem services, such as water quality and carbon stor-age which are of value to society (MA Board 2005)

Current attempts to reform agraprovide an example of what coulability of small scale farmersuily farmsto profit is strengthenfarming accounts for 38 percentagricultural and livestock producpercent of rural establishments rural labor force. Approximately

Brazilian municipalities, compriple, are rural. Public policy in Brfavored large farmers over smallple, although landlord farming acent of the agricultural GDP, it cof public rural credit. In contrasaccess to only 25 percent of the aproduce 40 percent of farm inco

Agrarian reform efforts to addreoccurring hand in hand with theHunger) program implementedThe Fome Zero program is intenmillion people with a minimumover the next four years in orderIt is supported by a series of init

production and guarantee incomfarming and agrarian credit, renof small producers, introducing establishing a national system oand rural extension, and investinand marketing support. It also hnisms to guarantee an income togovernment food procurement,

and regulatory stocks. Fome Zeroreforms designed to benefit poothem produce food to meet the dprogram (Graziano 2005).


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appropriate mix of intensificationthat is, increas-ing production without expanding cultivated areaand extensificationincreasing the land area onwhich crops are grown. Intensification is usuallycharacterized by an increase in inputs such as irriga-tion, fertilizer, and pesticides, making water pollutiona typical environmental impact of intensification(Mellor 2002). Intensification can also involve the

mechanization of agricultural activities, whichincreases energy use and emissions of greenhousegases. Extensification is less reliant on agrochemicalsand other inputs than is intensive agriculture, but itinvolves converting landusually natural ecosys-temsinto cropland, with negative environmentalimpacts such as habitat destruction.

Finding a balance between intensification and exten-sification that enables farmers to increase their prof-its while minimizing their environmental impact canbe made easier by macro-economic policies that facil-itate access for the rural poor to key inputs such ascredit, insurance, improved crop varieties, agro-chem-icals, water, technology, and transport and marketingservices (OECD 2002). Such policies could help

small-scale farmers increase their profits per hectare,which could decrease the need for extensification.The private sector can play an important role in mak-ing inputs available to poor farmers, and govern-ments may need to review regulations that hinderprivate sector investment. More importantly, theseregulations need to strategically direct and supportprivate-sector investment toward providing agricul-

tural inputs at reasonable cost for crops that farmershave identified as needing support. Caution must betaken to ensure that an expanded private-sector rolein rural development does not occur at the expense ofthe environment or the rights of small-scale farmerswho might not be well positioned to negotiate with

increase under the policies describedshould also foster the adoption of envsustainable crops and farming techncontour plowing, integrated pest manmanure, improved irrigation and wattechniques, and low-till farming. Thetainable crops and techniques requirdevelopment, and dissemination thro

such as agricultural extension, commorganizations, co-operatives or farmesite visits (OECD 2002).

To control extensification, zoning candetermine how different land areas acase of the most sensitive or vulnerabfor example, those with particularly h

or containing critical watershedshumay be excluded altogether. Outside one option for balancing livelihood nservation is to establish buffer zones low-impact activities such as the colletimber forest products (NTFPs) for hfor sale are allowed, or where sustainmay be practiced. However, enforcem

laws is a serious challenge in many dtries.

Other policies that mainstream poverand environmental protection could eregions to concentrate on high-value where they have a comparative advanket (locally, nationally, or worldwide)

that has generated significant earninof developing countries is cut flowersexample, the cut flower market contrto the economy as coffee export and tet al. 2003), bringing jobs and muchto frequently marginalized members


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REFORMING AGRICUL

at the expense of local populations and the environ-ment. Some crops that are geared specifically towardcreating social and environmental benefits along withprofits include organic fruits and vegetables, and fairtrade, shade-grown coffee, both of which fit into ahigh-value, niche market.

PROTECTING ECOSYSTEMS FOR HUMAN WELL-BEINGThe recently issued Millennium EcosystemAssessment (MA) report concludes that progress hasbeen made in providing more food for the world, butthat this has come at a high price to ecosystems andin the long run will undermine the worlds capacityfor food production (MA 2005). The MA suggestsways to reduce ecosystem degradation, including

within the agricultural sector (see Box 6).

Land degradation is not just an environmental prob-lem. Its impacts on development are considerable, asit undermines food production and exacerbatespoverty, and is a huge drain on economic resourcesoverall (OECD 2002). Agriculture is both a driver ofand a solution to this problem: overtilling and poor

irrigation practices are causes of land degradation,while soil conservation and other sustainable agricul-tural practices can help prevent further degradation,mitigate that which has already occurred, and con-tribute to restoration. Over the long term, resource-conserving agricultural systems are environmentallyand economically superior to conventional systems(Faeth et al. 1991). Encouraging the establishment

and maintenance of such agricultural systemsrequires policy reforms that address land degradationand promote conservation of biological diversity.

Soil conservation practices and technologies thataddress land degradation are available but have not

ers objectives and their productnecessary for designing suitable(Pandey 2001).

Policies to reduce land degradati

Box 6

Recommendations from the Millenn

Assessment

Remove subsidies to agriculture, fis

cause harm to people and the enviro

Introduce payments to landowners in

lands in ways that protect ecosystemquality and carbon storage, which ar

Establish market mechanisms to red

carbon emissions in the most cost-e

Include sound management of ecosy

regional planning decisions and in t

strategies being prepared by many d

Empower marginalized groups to inf

ecosystem services, and recognize in

ownership of natural resources.

Use all relevant forms of knowledge

ecosystems in decision-making, incl

local and indigenous groups.

Establish reliable certification systechoice to buy sustainably harvested

Invest in agricultural science and te

increasing food production with min

Restore degraded ecosystems.

Source: MA Board Statement 2005


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ecologically-based integrated pest and disease man-agement;

Reforming trade and market policies that areinconsistent with ecological agriculture, such assubsidies, taxes, and credit policies that promotemonocultures and excessive use of chemicalinputs; and

Establishing flexibility and diversity in marketingstandards to enable retail food stores and distribu-tors to diversify varieties of produce and reducewasteful cosmetic standards for foods in markets.(Thrupp 1998)

Agroforestry is another way to use land which, whilegenerating a greater impact on ecosystems than natu-

ral forests, nonetheless tends to provide greaterecosystem services than typical agricultural activitiessuch as pasture or row crops. However, whileresearch has shown agroforestry to be as profitable asother types of land use, such as livestock productionin the case of Brazil, start-up costs can be prohibitive-ly high (Vosti et al. 2002). Widespread adoption ofagroforestry may therefore require financial support

from the government or from other entities such asNGOs.

BEST PRACTICES IN GOVERNANCE

Finally, the policy reforms discussed in the previoussections are not in themselves sufficient to ensurethat subsidy reductions actually benefit livelihoods

and ecosystems. Reforms are also needed in gover-nance processes and institutions, both at large and inthose specific to agriculture. Such reforms couldinclude:

Accountable decentralization of authority over land

Decentralization of land and agricultmaking, accompanied by vigorous acmechanisms (Ribot 2004), can resulship over plans and programs that afBecause most of the economic and eimpacts of agriculture decisions are lempowering local authorities can be step toward making agriculture susta

Mechanisms that allow and promoteenvironment for an inter-agency ander approach to agriculture decisions, related ones, are essential to a reformVina and Fransen 2006). Lead institusector-focused, such as departments agriculture, are probably necessary s

abilities for decisions are clear. But thbecause of their narrow and limited fcontinually engaged with other agencenvironmental offices) and all relevanThese include farmers of all scales, ftence level to large agribusiness, as wdwellers and agricultural workers.

The agricultural sector serves multipTherefore, the establishment of intermulti-stakeholder decision-making pported by appropriate political and leadequate budgets, is critical for ensuby stakeholders of decisions that affeprocesses, to be credible, would haveent and allow for meaningful particip

affected stakeholders, particularly potheir families (WRI 2005). This princto extension programs, which are imof capacity-building and informationfarmers and need to be strengthenedto include sustainable practices


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REFORMING AGRICUL

culture or maintained as protected areas should bemade scientifically, transparently, and in a participato-ry manner. Rigorous scientific criteria and recogni-tion of rights are instrumental to making these deci-sions, and all relevant stakeholders (especially affect-ed indigenous peoples and poor farmers) must beconsulted and allowed to participate in the decisions.This is especially important where protected areas

conflict with local peoples livelihoods. Schemes suchas sharing park revenues or employing local peopleas guards or guides can provide an economic incen-tive to participate in protecting the area (Mellor2002). Other environmental laws include the estab-lishment of buffer zones that allow for only certaintypes of agriculture around the perimeter of protectedareas, and environmental corridors in agricultural

landscapes to mitigate fragmentation of natural habi-tats (OECD 2002).

Finally, the rigorous enforcement of pollution lawswithin the agricultural sector is necessary. This couldinvolve the modification of existing pollution laws,which are usually designed to regulate industrialwaste and by-products. In addition, countries may

wish to modify existing policies to comply with theStockholm Convention on Persistent OrganicPollutants (POPs), a global treaty to protect humanhealth and the environment from persistent organicpollutants. The Millennium Assessment Board alsorecommends the establishment of market mecha-nisms as a potentially cost-effective means of reduc-ing agricultural pollution, particularly nutrient releas-

es and carbon emissions (MA Board 2005).

Developing country governments must take the leadin implementing the policy reforms outlined above.However, international cooperation and supportsuch as increased official development assistance

V. CONCLUSIONAgricultural subsidies and their and the environment are part ofdetermines whether agriculture tive vehicle for poverty alleviatioin all countries. Even if meaningagreed to in the Doha negotiatio

is no certainty that the purportedof this trade round will be achievdeveloping countries may not rethese international decisions aredomestic policy reforms (summdirected at making agriculture pronment.

This reform agenda is relevant tgovernments, and also to develosuch as bilateral assistance agencooperation institutions, private development NGOs. It can servefinancial and technical support fparticularly their agriculture andlios. Rather than making these p

tionalities in the context of a WTwould be strongly resisted by dedevelopment cooperation agenciinfluence developing country agprograms that support the reformpaper.

By supporting the adoption and

this domestic reform agenda, detions can assist poor countries ina vehicle for poverty alleviation wecosystems on which poor farmgeneral depend. Among other coopment advocates should pay att


27/34


country as a whole. By promoting agricultural pro-duction, food security in both rural and urban areascan be achieved This agenda is in the interest of

areas, easing the burden for urban plslowing the growth in slum areas surdeveloping country cities

Adopt and implement policies that empower poor farmers to use

natural resources sustainably and strengthen their ability to nego-

tiate with other actors in the market with respect to the use of

land and other inputs into agricultural production. Examples of

measures that could be enacted include:

Laws that provide for rights-based land tenure policies, including

agrarian reform laws and recognition of indigenous peoples ter-

ritories;

Laws that provide a supportive environment for community enter-

prises, such as production and marketing cooperatives;

Laws that establish economic incentives for poor farmers to use

land and other resources sustainably, including direct compensa-tion for conservation activities, public goods, and ecosystem

services; and

Laws that allow for payments to landowners in return for land

management that protects ecosystem services, such as water

quality and carbon storage.

Put into place macroeconomic policies and measures that inte-

grate poverty alleviation and environmental goals into sectoral

plans focused on agriculture, including policies that regulate:

Pricing and trading of farm products;

Rural credit and insurance;

Use of agrochemical inputs;

Introduction of new and sustainable technologies and practices;

and

Transport services in rural areas.

Enact and implement laws, rules, and regulatio

context of agriculture, protect ecosystems and

vide for essential ecosystem services. Example

where appropriate policies and measures can h

culture sustainable include:

Soil conservation practices that address land

are designed for the benefit of poor farmers;

Crop diversification, recycling and conservatio

and organic matter, and ecologically-based in

disease management;

Flexibility and diversity in marketing standard

food stores and distributors to diversify varietreduce wasteful cosmetic standards for foods

Implement reforms directed at better governan

tural sector, including:

Accountable decentralization;

Establishment of inter-agency and multi-stak

agriculture; and

Strengthened enforcement of environmental laulations.

Box 7

Summary of Policy Recommendations for National Governments


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REFORMING AGRICUL

immense pressure on developed countries to reducetheir agriculture subsidies. The pressure will comefrom developing countries, which are expected to filemore cases in the WTO challenging these subsidies.It will result from domestic competition for scarcenational or regional (in the case of the EU) budgetaryresources. Moreover, even without a new WTO agree-ment, trade-induced changes that affect agriculture

are inevitable. These changes will come in the contextof global, regional, and/or bilateral trade agreementsor through sheer market changes, and they will havean impact on the poor and on ecosystems.

The domestic policies needed topro-poor and pro-environment acies, and countries that adopt thto be more prepared for the chanwith a new trade agreement, buttion their agricultural sector to bfor poverty alleviation and enviroity. These policies are no regrets

tion is good for poverty alleviatiosustainability regardless of the fiDoha trade round. Even withouttrade liberalization, these policy the poor and the environment.8


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Notes1. The Doha Round of negotiations is thus named because it was launched

at a Ministerial meeting in Doha, Qatar.

2. In addition to subsidies in developed countries, various forms of agricul-tural subsidies also exist in developing countries. Some studies predictthat developing countries will gain more from liberalizing their own agri-cultural trade policies than from a reduction in developed country subsi-dies (Diao et al. 2005), while others show that the benefits from liberaliz-ing agriculture in developed countries are greater (Ackerman 2005). Thispaper focuses on agricultural subsidies in developed countries, given theirextent in terms of the amount of money actually spent, their impact on theworlds poor and the environment, and the mounting pressure on developedcountries, through the WTO and otherwise, to reduce their subsidies.

3. Classified by gross sales (WTO 2003a).

4. Under the US Farm Bill of 2002, farmers in just six statesIllinois, Iowa,Kansas, Minnesota, Nebraska, and Texasare estimated to receivealmost half of the subsidy payments. Most of these subsidies go towardscorn, wheat, cotton, rice, soybeans, and protected specialty products likemilk, sugar, and peanuts. In states where these products are not grown,most farmers receive little or no benefit. For example, in California only 9percent of farmers receive subsidies; in Florida, only 8 percent; and inNew Jersey, only 7 percent (Luger 2002).

5. Argentina, Australia, Benin, Canada, Chad, China, the EuropeanCommunity, India, New Zealand, Pakistan, Paraguay, Taiwan andVenezuela are third parties to the case.

6. Although average world prices would go up, consumers in countries wheredomestic production is protected can still expect to see lower prices asthey are currently paying well above world prices.

7. The Millennium Ecosystem Assessment (MA) was carried out between

About the AuthorsAntonio La Vina is a Senior FellFransen is an Associate in the InGovernance Program at the WorInstitute. Paul Faeth is ManaginWorld Resources Institute. YukoResearch Assistant at the World


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About WRIThe World Resources Institute is an environmental think tank that goesbeyond research to create practical ways to protect the Earth and improvepeoples lives. Our mission is to move human society to live in ways thatprotect Earths environment for current and future generations.

Our program meets global challenges by using knowledge to catalyzepublic and private action:

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