The environmental impact of agricultural subsidies

1
The environmental impact of agricultural subsidies

• WTO Symposium on Trade and Sustainable
  Development
• 10-11 October 2005
• Ramesh Sharma
• Commodities and Trade Division
• FAO, Rome

2
Linkage between trade distortions and environment
popular views or positions

• Trade reforms offer win-win-win outcomes and
  opportunities (wins for trade, environment and
  development)
• The non-trade concerns view a certain level
  of distorting measures may be essential for
  maintaining positive externalities of
  agricultural production

3
Comprehensive Africa Agriculture Development
Programme (CAADP), NEPAD
4
The agricultural crisis of Africa- relevant
indicators of environmental and sustainable
development problems (1)

• Irrigation ( of arable land irrigated) - SSA 4,
  Africa 7, East Asia 29 and South Asia 41
• Soil and fertility (land classified as having low
  nutrient reserves) - 16 in Africa, 4 in Asia
• Fertilizer use (nutrients application per
  hectare) - SSA 9 kg Africa 21 kg South Asia 100
  kg east Asia 135 kg developed countries 206 kg
• Fertilizer productivity (in terms of maize yield
  response) - 36 lower in SSA than in Asia and 92
  lower than in developed countries

5
The agricultural crisis of Africa- relevant
indicators of environmental and sustainable
development problems (2)

• Rural infrastructures for trade, among other
  things
• all indicators very low relative to other
  regions
• Poverty and food insecurity
• Population undernourished 194 million (1997-99),
  up from 168 million in 1990-92
• Daily food supply 2190 kcal in 1997-99
• Food import bill US 20 billion per year

6
And a host of environmental problems associated
with these

• Degraded land
• Soils depleted with nutrients no replenishment
  of nutrients
• Soils unable to hold water and fertilizers
• Poor forest cover due to overgrazing
• Risks to habitat and biodiversity
• Lack of adoption of resource efficient
  technologies, although available

7

• The CAADP
• is said to be a
• crisis response to a crisis situation
• - a blueprint for the recovery of African
  agriculture -

8
Grossly inadequate public sector investment in
agriculture is identified as the key problem
9
Investment requirements identified by CAADP for
agricultural recovery and growth (billion US,
2002-15 total)
10
The four pillars of the CAADP many
sub-components are about restoring degraded
environment for sustained growth in production

• Pillar 1 Land and water Management
• Pillar 2 Improving rural infrastructure and
  trade-related capacities for market access
• Pillar 3 Increasing food supply and reducing
  hunger
• Pillar 4 Agricultural research, technology
  dissemination and adoption

11
What role for subsidies in the CAADP recovery and
growth plan?

• Highest priority assigned to investment
  (infrastructures and technology)
• Also high response to environmental problems
• Supports the generous use of matching grants
  (the terminology for subsidy) from the
  government to reach small and marginal farmers in
  disadvantaged areas
• On this point, similar in approach to World
  Banks new Africa Regions Rural Strategy

12
Interface between CAADP and the WTO Agreement on
Agreement any implications?

• No implications for programmes on
  infrastructures, research, extension etc. (Green
  Box)
• In CAADP subsidies (matching grants) expected
  to play an important role
• Will the AoA undermine the importance of the much
  needed policy space?
• Current use of the non product AMS is very low
  (Table)

13
Total Non-product AMS as of value of
agricultural production
14
But this was a measure for a period (mid- to late
1990s) when ODA was at its lowest and investment
in agriculture was very low

• The coming years are going to be different if
  NEPADs commitment on agriculture materialize, if
  WB and others increase support to agriculture as
  per new Rural Development Strategy and if
  Monterrey and other initiatives materialize
• The CAADP itself sees an important role for
  subsidies as a means to reach the small and
  marginal farmers
• In that case, these countries will need more
  policy space than they have used so far

15
Stages of economic development and appropriate
agricultural policies
Infrastructure . RD . Irrigation . Land reform .
Roads
coupled measures most effective Subsidies have
a role to play
Withdrawal de-coupled measures
Early stage/ Establish basics
Kick-start/ Production growth
Maintain production/ Farm income