Agriculture and the environment lessons learned from a decade of oecd work

Agriculture and the Environment:
Lessons Learned from a Decade of OECD Work

3
TABLE OF CONTENTS
Page
PREAMBLE...................................................................................................................................... 5
EXECUTIVE SUMMARY............................................................................................................... 7
What is shaping the environmental performance of agriculture?...................................................... 10
Agri-environmental performance: getting better or worse? .............................................................. 11
Agricultural support: what are the linkages with the environment?.................................................. 19
Agri-environmental measures: how have they developed?............................................................... 22
Payment or charge: when should farmers pay for pollution and be paid for services provided?...... 24
Environmental regulations: do they hinder competition?.................................................................. 25
Trade liberalisation: good or bad for the environment? .................................................................... 25
Agri-environmental policies: how effective and efficient are they?.................................................. 27
Which mix of policy measures and market approaches is optimal?.................................................. 28
What future direction for agri-environmental policies? .................................................................... 30
What are the main policy conclusions from the OECD work
on agriculture and the environment? ................................................................................................. 31
Figures
1. Change in agricultural land area: 1990-92 to 1999-2001.............................................................. 14
2. Total agricultural water use: 1985-2000........................................................................................ 15
3. Soil surface nitrogen balance estimates: 1985-87 to 1995-97....................................................... 16
4. Pesticide use in agriculture: 1990-92 to 2000-02 .......................................................................... 17
5. Gross emissions of greenhouse gases from agriculture: 1990-92 to 1999-2001........................... 18
Boxes
1. Main agri-environmental measures in OECD countries................................................................ 23
2. Organic agriculture........................................................................................................................ 29
3. Agricultural biomass: potential for bio-energy and bio-materials................................................. 31

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PREAMBLE
This report provides a concise summary of the main lessons learned from a decade (1993-2003)
of work on agriculture and environmental policy issues in the OECD, and identifies the main emerging
issues and challenges in order to assist policy makers in the on-going design and implementation of
effective and efficient policies. When the OECD created the Joint Working Party on Agriculture and
the Environment (JWP) in 1993, the aim was to increase understanding of these policy issues by
x providing a forum for a broad exchange of views, analysis and information on agri-
environmental relationships in the context of sustainable development, the reform of
agricultural and trade policies, and the implementation of multilateral environmental
agreements; and
x undertaking the monitoring and evaluation of agriculture’s environmental performance
and policies with the aim of contributing to the design and implementation of policies and
actions to facilitate sustainable agriculture and the management of natural resources in
agriculture.
The activities of the JWP have made progress in
x identifying key policy issues and the linkages between agriculture and the environment;
x developing indicators to track conditions and trends in the state of the environment in
agriculture for policy purposes;
x providing an inventory of policies addressing environmental issues in agriculture; and
x examining in depth specific environmental issues and policies of importance to
agriculture.
The analysis has taken into consideration the wide range of agri-environmental conditions and
policies across OECD countries, and the results have been published on a regular basis.1
A list of the
publications from the work of the JWP, together with a list of other OECD publications that draw on
or contribute to the work on agriculture and the environment, are presented at the end of this report. In
these publications readers can find detailed supporting analysis, data, and further information on
lessons learned from the work achieved to date.
Over the past decade the JWP has provided a solid foundation for policy analysis. It has
highlighted the complexity of the linkages between agri-environmental and agricultural policies and
environmental outcomes and showed that there is no general “one-size-fits-all” policy formula for
dealing with environmental concerns, although work on the above activities is still in progress. Further
understanding of these linkages will be a central focus of future work in the JWP, with the aim of
helping policy makers in the design, monitoring and evaluation of their policies.
This report was declassified for publication by the JWP in June 2004.

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EXECUTIVE SUMMARY
The main policy lessons learned from the OECD work on agriculture and the environment are:
x There has been an overall improvement in the environmental performance of agriculture,
but this masks a number of severe local and regional problems, while future global
pressures on land and water resources will be significant.
x There is evidence of some environmental improvements resulting from agri-environmental
measures, but in certain cases there is a lack of policy coherence in a number of OECD
countries where these measures and commodity production-linked support policies are
pulling in opposite directions.
x Environmental improvement in agriculture has involved costs that would be lower in the
absence of commodity production-linked support measures, which may provide incentives
to adopt environmentally harmful practices (including the more intensive use of
chemicals), and expand commodity production to environmentally sensitive land.
x Although environmental cross-compliance conditions associated with commodity
production-linked payments to farmers may mitigate some environmental pressures, there
are other ways of effectively reducing the inconsistencies between agricultural and
environmental policy objectives,
x It is not sufficient to show that the policies in place have been effective; it is also
necessary to establish the costs of such an achievement, and to identify the policies and
market actions that would achieve the same or better environmental outcomes at a lower
cost.
x There is scope for looking for ways to take greater account of agriculture’s environmental
costs and benefits in farmers’ production decisions, and for a more comprehensive
application of the polluter-pays-principle in agriculture.
x There is unlikely to be a general “one-size-fits-all” formula for dealing with environmental
concerns and achieving an optimal policy mix, including market approaches, because
agro-ecological conditions and public preferences vary across countries.
In all OECD countries public awareness and concern with the impact of agriculture on the
environment are increasing. Markets have not always delivered the environmental outcomes that
society demands. In response, there is a growing emphasis on policies to address these concerns
or demands from society. This trend looks likely to continue in the future. But, while a wide range of
policies are in place to address agri-environmental issues, some measures simply offset the
environmental pressure from other agricultural policies. A decade of work in the OECD has
provided a forum for member countries to better understand and analyse the relationship between
diverse policies, agriculture and the environment.
What has been the environmental performance of agriculture in recent years? According to the
work on developing agri-environmental indicators there has been some reduction in the pressure
on the environment in agriculture across OECD countries, but progress has been mixed since the
mid-1980s. Land used for agriculture and soil loss have decreased, but water use has increased.
Nutrient surpluses have decreased in many countries, easing pressure on water quality, but
significant pockets of high concentrations remain. Pesticide use on average across the OECD has
shown a slight increase throughout the 1990s, but there is insufficient evidence as to the
environmental risks of pesticides. On average, greenhouse gas emissions have increased, but
there were considerable reductions in some countries. The long-term decrease in biodiversity and
the deterioration of landscape features appears to have slowed, or even improved in some cases.
But if OECD and global future food and raw material needs are to be met, agricultural production
will need to expand, which in some OECD countries will generate further environmental pressure,
particularly on land and water resources.

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In what way have policies contributed to these developments and how can they help to ease
future environmental pressures from agriculture? Agricultural support provided by commodity
production-linked measures remains the predominant form of support in OECD countries, despite
reforms. OECD work shows that this raises land and other fixed-asset values and provides
incentives to adopt environmentally harmful practices (including the more intensive use of
chemicals) and expand production onto environmentally sensitive land, thereby aggravating
pressure on the environment. Constraints on production (e.g. production quotas and set-aside land)
limit the impacts of commodity production-linked support on the environment, but may impede
structural adjustment, and lock-in environmental impacts. However, the linkages between policies
and environmental performance are complex and may vary across regions, countries, and time.
Therefore, there is a need to link the measurement of environmental performance (indicators) to
the characteristics of different policy measures.
There is a plethora of measures in OECD countries to address a wide range of environmental
issues in agriculture. While there is evidence of some environmental improvements resulting from
these measures, in certain cases they reveal a lack of policy coherence, with agri-environmental
measures and commodity production-linked support policies pulling in opposite directions. Where
support is provided through commodity production-linked measures, the provision of environmental
services must be weighed against the cost of the environmental damage generated by those
measures.
It is notable that countries with relatively low levels of commodity production-linked support are
those that tend to rely more on market-related and co-operative approaches. On the other hand,
those countries that make the greatest use of agri-environmental payments also tend to have
relatively high levels of commodity production-linked support, making the attainment of
environmental objectives less certain and more costly than would be the case in the absence of
such support.
In some countries, environmental cross-compliance conditions associated with commodity
production-linked payments to farmers are seen as a means of reducing some of the
inconsistencies between agricultural and environmental policy objectives and thus mitigating
environmental pressures. A key limitation is that those farmers who receive payments with cross-
compliance conditions are not necessarily those farming the most environmentally sensitive land.
Moreover, cross compliance conditions apply only when both support measures and environmental
pressure are in place. Phasing out policy measures linked to commodity production – which often
exacerbates environmental pressure – would therefore lessen the reason for cross compliance in
these cases, although not the need for targeted environmental measures.
There is scope for a wider consideration of agriculture’s environmental costs in production
decisions, through identifying polluters, and monitoring and enforcing actions. The relative absence
of environmental taxes and charges, and the dominance of agri-environmental incentive payments
in OECD countries are symptoms of the fact that farmers in some countries have retained broad
implicit or “presumptive” rights in the use of natural resources.
There is also a need for clearer definitions of property rights in agriculture. This would help
policy makers decide whether farmers should be liable at their own cost for environmental damage,
and where they could be remunerated for providing environmental services over and above those
rewarded through the market. In addition, while there are often difficulties in applying the polluter-
pays-principle in agriculture, there is scope for a more comprehensive application in the sector.

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Demonstrating the various environmental effects of agricultural trade liberalisation is a difficult
task. However, available evidence suggests that it has resulted in some shift in production from
higher to lower-cost and input-using systems. It has reduced production intensity in countries with
historically high levels of fertiliser and pesticide application, relieving environmental stresses in
these areas, but has raised environmental pressure in those countries where production has
increased. There is little evidence whether the abandonment of farming that generates
environmental benefits is due to trade liberalisation, or whether environmental regulations
significantly affect trade competitiveness for producers. Nevertheless, potential environmental
gains from trade liberalisation will be greater where targeted measures are in place to deal with
harmful and beneficial environmental effects.
Policy intervention should promote rather than hinder favourable agri-environmental outcomes
and the policy mix should be the most cost-effective possible. There is a role for regulatory
frameworks, information-based strategies and economic instruments in the policy mix. In
determining appropriate policy intervention it will always be prudent to first establish if markets
alone will fail to deliver the environmental outcomes desired.
In the future, evaluating ways to achieve better environmental outcomes at lower cost requires
a deeper understanding and measurement of the linkages between policy causes and
environmental effects. Analysis of the linkages between policies and environmental performance is
complex, but policy should be directed to the cause, rather than the symptom, of any problem or
objective to be addressed. Therefore, there is a need to develop methods and tools to analyse
these complex interactions and spatial differences to enhance the understanding, measurement
and analysis of linkages between policies and environmental outcomes. And sharing the
experiences in OECD countries of what has or has not worked is an essential ingredient in
determining the most cost-effective mix of policies and market approaches.

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What is shaping the environmental performance of agriculture?2
There is a need
to improve
environmental
performance in
agriculture, . . .
There is a general recognition of the need to improve
environmental performance in agriculture, through enhancing the
beneficial – and reducing the harmful – environmental effects to
ensure the sustainability of resource use. However, agriculture has a
complex relationship with natural resources and the environment, and
attributing specific environmental effects to agriculture is difficult
and not fully understood. Agriculture is a major user of land and
water resources yet needs to maintain the quantity and quality of
those resources in order to remain viable. Agriculture generates waste
and pollution yet it also conserves and recycles natural resources, and
changes landscapes and habitats for wildlife. Many of the
environmental effects are confined to the sector itself, but off-farm
effects are also important. The impacts are often concentrated locally
and regionally, although some are of national and international
significance.
. . . which is
influenced by many
factors, including
policies . . .
Agricultural and environmental policies, markets, farm-
management practices, structural change, technological developments
and socio-cultural preferences are the main driving forces that
interact – and sometimes give conflicting signals – in determining
agriculture’s environmental performance. It is no simple task,
however, to identify and measure the respective influence of all these
driving forces. The heterogeneity of the natural resource base, farm
structures and production systems used by farmers, and the
assimilative capacity of ecosystems differ from place to place.
Disentangling the influence these various factors have on
environmental outcomes raises problems of identification and
measurement, including the predominance of dispersed, non-point
source pollution in agriculture and often lengthy delays in the
manifestation of environmental outcomes, such as pollution of
groundwater.
. . . which have
evolved over a long
period of time.
The sufficiency and regularity of food supplies is largely assured in
OECD countries. Generally rising prosperity and awareness have led
to greater public demand for food produced in ways that also
conserve or enhance the natural or aesthetic environment. The
environmental performance of agriculture has evolved within the
context of a long history of agricultural policies in OECD countries,
most of which deliver support through commodity production-linked
measures (i.e. market price support, output payments, and input
subsidies), largely aimed at supporting farm incomes.
Environmental
regulations are having
an increasing effect
on agriculture.
Agricultural policy reforms and trade liberalisation have reduced
the importance of production-linked policy measures, but they remain
dominant in most OECD countries. Economy-wide environmental
regulations increasingly impact on agriculture. Markets function –
albeit often heavily influenced by government intervention – to
match the demand and supply of agricultural commodities but, with
regard to many environmental goods and services, they either

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function badly or are non-existent. Frequently, the nature and
quantification of the public’s demand for “environmental
performance” from agriculture is not at all clear.
The future challenge
is whether agriculture
can produce enough
food without degrading
natural resources.
The agri-food sector in OECD countries has witnessed a steady
trend in output growth, largely through higher productivity, but with
mixed results on environmental performance. In the next half-century
agriculture, worldwide, will be required to double its output if it is to
meet the expected increased global demand for food and reduce
hunger. The challenge is whether agriculture can efficiently produce
the food to meet this growing world demand over time without
degrading natural resources – productive soils, unpolluted air, clean
and sufficient supplies of water, conserved habitats, biodiversity and
landscapes – and do so in ways that are socially acceptable.
Many policies impact
on the environmental
performance of
agriculture, . . .
In OECD countries environmental concerns in agriculture have
been directly addressed through different combinations of specific
agri-environmental policy measures; agricultural policy measures that
include environmental conditions; economy-wide environmental
regulations and policies; zoning regulations; research and
development, education, and extension service provision; and
facilitation of co-operative, voluntary and market-based approaches.
. . . but the relationship
between policies,
agricultural production
and environmental
outcomes remains
inadequately understood.
As all policies have some impact on the environmental
performance of agriculture, the challenge has been to analyse the
extent to which the policy measures and mixes of policies have
facilitated or impeded that environmental performance, and to assess
the economic and social costs involved. While much work has been
undertaken both in individual countries and in the OECD, in many
cases the results are preliminary. Research is at a relatively early
stage in understanding and measuring the complex relationship
between policies, agricultural production and environmental
outcomes, in order to evaluate policies and draw general and widely
applicable conclusions.
Agri-environmental performance: getting better or worse? 3
Agriculture is a major
user of natural resources,
especially land and
water . . .
As a major user of natural resources, agriculture has a significant
impact on the environment in OECD countries. Agriculture in the
OECD area accounts for around 40% of total land and nearly 45% of
water use and, in many countries, dominates and shapes the
landscape. Contrary to many other economic activities, agriculture
has both harmful and beneficial effects on the environment, by
changing the quality or quantity of soil, water, air, biodiversity and
landscapes.

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. . . and generates
both negative and positive
environmental impacts . . .
Increasing food demand – together with policies encouraging
production – and technological and economic changes have often led
to a marked intensification of agriculture (more output per unit of
land or labour) and farming on environmentally sensitive land, which
in some cases has led to environmental harm. These detrimental
effects include mainly water and air pollution, but also the loss of
wildlife, habitats and landscape features. Soil degradation and water
depletion are also serious concerns in some areas. On the other hand,
environmental benefits may in some circumstances include:
contribution to water accumulation and flood control, nutrient
recycling and fixation, soil formation, carbon sequestration by trees
and soil, wildlife and biodiversity protection and the provision of
recreational services and aesthetic value.
. . . but measuring
environmental
performance is not easy.
Measuring agri-environmental performance is not an easy task, but
progress has been made on developing common methodologies to
measure such performance through the construction of agri-
environmental indicators. The indicators cover the environmental
pressures from developments in markets, policy and technology that
potentially determine the state of the environment (e.g. soil and water
quality, ecosystem stress). These pressures provoke responses or
actions by farmers (e.g. nutrient management); policy makers
(e.g. regulations, conditionality); markets (e.g. tradeable permits);
and technological change (e.g. animal feed-use efficiency, global
positioning systems and precision farming).
Agriculture has
contributed to soil
erosion . . .
Agriculture has contributed to soil erosion through certain
practices such as land-use conversion, tilling or overgrazing. Major
concerns are soil erosion caused by both wind and water in the
United States and in the Canadian wheat belt, and water-related
erosion problems in Australia, New Zealand and Mediterranean
countries.
. . . and is a significant
source of water pollution
in some regions.
Farming is currently a significant source of water pollution, which
is a particular problem in certain regions of Europe and the United
States, and at a local level in other countries including Australia,
Canada and New Zealand. The application of fertilisers in
agriculture and animal effluent from livestock account for as much as
40% of nitrogen and 30% of phosphate emissions in surface water in
some OECD countries, contributing significantly to the problems of
eutrophication, which results in the depletion of oxygen in water.
Pesticide run-off from agricultural land also impairs drinking-water
quality and harms water-based wildlife.
Excessive groundwater
extraction is also a
concern in many OECD
countries . . .
Irrigation accounts for a major share of water use in most OECD
countries and excessive groundwater extraction levels are a concern
in many areas, particularly the drier regions of Australia, Southern
Europe, Mexico and the United States. Problems of salinisation are
associated with land-clearing and irrigation in several countries,
including Australia.

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. . . while air pollution
tends to be pronounced
in areas of intensive
agricultural production.
Air pollution problems caused by ammonia (acid rain), methyl
bromide (ozone depletion), pesticide drift, crop burning and offensive
odours also tend to be pronounced in areas of intensive agricultural
production. Gaseous emissions from agriculture – in particular
methane and nitrous oxide – are also a notable contributing factor to
global warming and climate change. It is estimated that agriculture
currently accounts for around 9% of total OECD greenhouse gas
emissions, although certain agricultural activities have a potentially
significant mitigating effect on the process of global warming,
particularly the sequestration of atmospheric carbon in the soil and
the production of biomass crops, including those grown for energy
use. In the longer term, climate change affects agriculture through the
levels and variability of temperature and rainfall, which in turn leads
to pressures to adjust farm practices and location, and commodities
produced.
Agriculture has been
identified as a significant
cause of the loss of
biodiversity . . .
In many OECD countries agriculture has been identified as a
significant cause of the loss of biodiversity, in particular leading to
habitat degeneration through land-use changes caused by the
intensification of farming practices (including larger field size,
reduced crop rotations and increased fertiliser and pesticide
application). However, abandonment of farming has led to changes in
the habitats in a number of areas using specific farming practices.
This is especially the case in Europe, where many of the most valued
areas for wildlife tend to be semi-natural habitats, and species have
co-evolved with traditional agricultural practices over many
centuries. By contrast, in countries such as Australia, New Zealand
and North America, valued habitats are predominantly associated
with natural areas including grasslands, wetlands, native forests and
bush. These areas have in some cases been put at risk by agricultural
practices. For example, in the United States the conversion of
grasslands and wetlands to cropland is judged to have contributed to
the decline of several rare species of wildlife.
. . . and land
abandonment has led
to concerns relating
to the preservation of
landscapes.
Pressures on land use and the adoption of more intensive farming
practices, as well as land abandonment in some OECD countries have
led to concerns relating to the preservation of landscapes associated
with traditional agricultural practices, particularly in European
countries, Japan and Korea, where such landscapes are generally
considered to be of cultural significance. In other OECD countries,
such as Australia, New Zealand and North America, the
preservation of rural landscapes is generally not considered a priority
for government financial assistance, although there are concerns
relating to the loss of rural land to urban development in certain
areas, particularly in regions of the United States, and to rural
depopulation in Australia.

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While agricultural
production has risen,
environmental
performance has been
mixed across and within
OECD countries.
Overall, while agricultural production and productivity have
generally increased in all OECD countries, the environmental
performance of agriculture has been mixed across and within
countries. The area of land used for agriculture and the amount of soil
loss have declined, but water use has increased (Figures 1 and 2).
Nutrient surpluses discharged into the environment from farming
have decreased in many countries, easing pressure on water quality,
but pockets of high concentration remain (Figure 3). On average,
pesticide use across the OECD has shown a slight increase over the
1990s (Figure 4) but there is, however, insufficient evidence as to the
environmental risks of pesticides. Greenhouse gas emissions have
increased, on average, although certain countries have shown a
considerable reduction in emissions (Figure 5). There is also some
evidence of an attenuation of the longer-term decrease in biodiversity
and landscape features.
Figure 1. Change in agricultural land area:1
1990-92 to 1999-2001
-10
-8
-6
-4
-2
0
2
4
6
KoreaIrelandJapanFinlandG
reeceSwedenHungary
United
Kingdom
Italy
Denm
arkEU
15
United
StatesAustriaSpain
New
ZealandTurkeyFrance
Netherlands
AustraliaPoland
G
erm
anyO
ECDPortugal
Slovak
Rep
Czech
RepIcelandCanada
SwitzerlandM
exico
Belgium
(2)Norway
%
Notes:
1. Agricultural land area: area of arable land plus permanent crops and permanent pasture.
2. Including Luxembourg.
Source: FAO database and national data for Switzerland.

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Figure 2. Total agricultural water use:1
1985-2000
1985 2000
Iceland 4 70
Turkey 14 300 30 600
United Kingdom 468 1 880
Finland 20 50
Greece 4 600 9 067
Australia 11 500 17 957
OECD 324 304 420 315
EU-15 40 909 49 207
Austria 95 100
United States 195 300 191 555
Japan 58 490 57 240
Sweden 167 150
Spain 30 400 25 640
Germany 223 163
France 4 471 3 088
Hungary 727 502
Poland 1 607 1 061
Slovak Rep. 164 91
Denmark 465 208
Czech Rep. 63 15
Total agricultural water use
million m3% change in total agricultural water use
-80 -60 -40 -20 0 20 40 60 80 100
Czech Rep.
Denmark
Slovak Rep.
Poland
Hungary
France(4)
Germany
Spain (4)
Sweden
Japan
United States
Austria
EU-15 (5)
OECD (6)
Australia (4)
Greece (4)
Finland (3)(4)
United Kingdom (2)(3)
Turkey
Iceland
%
Notes:
1. Agricultural water use is defined as water for irrigation and other agricultural uses, such as livestock operations. It includes water
abstracted from surface and groundwater, and return flows (withdrawals) from irrigation for Finland, France, Germany, Greece, the
Netherlands, Spain and Turkey, but excludes precipitation directly onto agricultural land.
2. England and Wales only.
3. Change is greater than 100% for Iceland (1 650%), Finland (150%), Turkey (114%) and the United Kingdom (302%).
4. Data for irrigation are used where data for agricultural water use are not available.
5. EU-15 excluding: Belgium, Ireland, Italy, Luxembourg, the Netherlands and Portugal.
6. OECD excluding: Belgium, Canada, Ireland, Italy, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway and
Switzerland.
Source: OECD Environmental Data Compendium.

16
Figure 3. Soil surface nitrogen balance estimates:1
1985-87 to 1995-97
Nitrogen balance
% Change in the nitrogen balance kg/ha of total agricultural land
kg/ha of total agricultural land
1985-87 1995-97
Canada 6 13
Korea 173 253
New Zealand 5 6
Ireland 62 79
United States 25 31
Australia 7 7
Portugal 62 66
Spain 40 41
Norway 72 73
OECD 23 23
Iceland 7 7
Belgium 189 181
Japan 145 135
France 59 53
EU-15 69 58
Netherlands 314 262
Finland 78 64
United Kingdom 107 86
Austria 35 27
Denmark 154 118
Switzerland 80 61
Sweden 47 34
Mexico 28 20
Turkey 17 12
Italy 44 31
Germany 88 61
Greece 58 38
Poland 48 29
Czech Rep. 99 54
Slovakia 91 36
Hungary 47 -15
-135 -85 -35 15 65 115
Hungary
Slovakia
Czech Rep. (6)
Poland
Greece
Germany (5)
Italy
Turkey
Mexico
Sweden
Switzerland
Denmark
Austria
United Kingdom
Finland
Netherlands
EU-15 (4)
France
Japan
Belgium
Iceland (3)
OECD (2)
Norway
Spain
Portugal
Australia
United States
Ireland
New Zealand
Korea
Canada
Notes:
1. Soil surface nitrogen balance is the difference between the nitrogen available to an agricultural system (inputs, mainly from livestock
manure and chemical fertilisers) and the uptake of nitrogen by agriculture (outputs, largely crops and forage). It includes atmospheric
deposition of nitrogen, which is mainly independent from agricultural activities.
2. OECD average, excluding Luxembourg.
3. The 1995-97 average refers to 1995.
4. EU-15 average, excluding Luxembourg.
5. Including eastern and western Germany for the whole period 1985-97.
6. Data for the period 1985-92 refer to the Czech part of the former Czechoslovakia.
Source: OECD Environmental Indicators for Agriculture, Volume 3, 2001.

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Figure 4. Pesticide use in agriculture:1
1990-92 to 2000-02
% change in tonnes of active ingredients Tonnes of active ingredients
1990-92 2000-02
Poland 6 507 9 366
Turkey 11 967 17 129
Greece 8 193 11 365
Portugal 12 457 15 461
Canada 33 964 41 980
Italy 69 550 79 408
Spain 36 849 39 883
EU-15 324 544 342 949
Mexico 36 000 38 037
Ireland 2 043 2 124
United States 325 226 332 181
OECD 815 484 829 019
Korea 28 097 27 838
Slovak Republic 3 694 3 596
France 95 281 92 263
New Zealand 3 490 3 368
United Kingdom 34 060 32 873
Belgium 10 246 9 386
Germany 32 629 29 248
Sweden 1 897 1 700
Japan 89 112 73 618
Finland 1 727 1 401
Austria 4 206 3 348
Switzerland 2 120 1 555
Czech Republic 6 699 4 460
Norway 912 573
Denmark 4 948 2 931
Netherlands 17 744 9 199
Hungary 18 554 6 711
-70 -50 -30 -10 10 30 50
Hungary
Netherlands
Denmark
Norway
Czech Republic
Switzerland
Austria
Finland
Japan
Sweden
Germany
Belgium (3)
United Kingdom
New Zealand
France
Slovak Republic
Korea
OECD(2)
United States
Ireland
Mexico
EU-15
Spain
Italy
Canada
Portugal
Greece
Turkey
Poland
Notes:
1. Some caution is required in comparing trends across countries because of differences in data definitions, coverage and time periods:
for full notation, see the source below:
Data for 1990-92 average cover:
Canada: 1990
EU-15: with estimates for Greece and Portugal for 1990
Greece: 1989, 1991, 1992 average
Mexico: 1993
Portugal: 1996
Turkey: 1993-95
Slovak Republic: 1991-93.
Data for 2000-02 average cover:
Belgium and Mexico: 1998-2000
Canada: 1999-2000
Ireland, Italy, Japan, Korea and Portugal: 1999-2001
Turkey: 2000-01
US: 1997-99
EU-15: 1999-2001, with estimates for Belgium for 2001
OECD: 1997-99.
2. Excluding Australia and Iceland.
3. Including Luxembourg.
Source: OECD Environmental Data Compendium.

18
Figure 5. Gross emissions of greenhouse gases from agriculture:1
1990-92 to 1999-2001
% change in gross emissions of greenhouse gases from agriculture
1999-2001
Spain 13
Canada 9
New Zealand 52
Australia 22
Czech Republic 5
Ireland 30
United States 7
Belgium 10
Portugal 16
OECD 9
Italy 9
Norway 12
Luxembourg 9
Poland 7
France 19
EU-15 11
Greece 10
Iceland 10
Netherlands 11
United Kingdom 8
Sweden 14
Switzerland 12
Turkey 6
Germany 7
Japan 5
Finland 9
Denmark 20
Austria 11
Slovak Republic 8
Percentage share of agricultural
sources in total GHG emissions
-50 -40 -30 -20 -10 0 10 20
Slovak Republic
Austria(2)
Denmark(2)
Finland(2)
Japan
Germany(2)
Turkey(4)
Switzerland
Sweden(2)
United Kingdom(2)
Netherlands(2)
Iceland
Greece(2)
EU-15(2)
France(2)
Poland
Luxembourg(2)
Norway
Italy(2)
OECD(3)
Portugal(2)
Belgium(2)
United States
Ireland(2)
Czech Republic
Australia
New Zealand
Canada
Spain(2)
Notes:
1. Greenhouse gases include carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O), expressed in CO2 equivalent.
2. Data for carbon dioxide in 2001 are not available; average of 1998-2000 is used for 2001.
3. Excluding Hungary, Korea and Mexico.
4. Turkish Ministry of Environment: data available only from 1990-97.
Source: OECD Secretariat; Turkish Ministry of Environment; UNFCCC (United Nations Framework Convention on Climate Change).

19
Agricultural support: what are the linkages with the environment?4
Commodity production-
linked support often
exacerbates pressure
on the environment.
Agricultural support policies, in particular those providing
commodity production-linked support often exacerbate
environmental pressures. However, these support policies are not
normally implemented in isolation, as they are often accompanied
with production constraints (e.g. production quotas and set-aside
land) and other policy measures specifically designed to mitigate or
enhance their environmental impacts (e.g. cross compliance and agri-
environmental payments).
The more a policy
measure stimulates
increased production,
the greater the pressure
on the environment . . .
Ranking agricultural policy measures according to their potential
relative impacts on production shows that, all other things being
equal, market price support, output payments (per output unit
produced) and input subsidies (such as those that apply to fertilisers,
pesticides, water and energy) provide the greatest potential incentive
to increase commodity production. A key factor determining the
impacts of agricultural policies on the environment centres on their
effect on raising land and other fixed asset values, which influence
farm-level decision-making regarding the choice of farming
practices.5
In general, the more a policy measure provides an
incentive to increase production of specific agricultural commodities,
the greater is the incentive towards monoculture, intensification
(greater yields), or bringing marginal (environmentally sensitive)
land into production, and the higher is the pressure on the
environment. On the other hand, the more a policy measure can be
targeted to a specific environmental goal, the greater is its potential
effectiveness in achieving that goal.
. . . but a reduction
of production-linked
support, together with
environmentally targeted
support, has eased
environmental pressure.
As commodity output and input-linked measures are difficult to
target to specific environmental goals, but are likely to provide
incentives to farmers to increase the intensity of production and/or
expand farm production on environmentally sensitive land, they tend
to aggravate many of the environmental pressures in OECD
countries. While commodity output and input-linked support
measures can contribute to maintaining farm systems providing
environmental services such as biodiversity, flood control, carbon
sinks and landscape, such support is not targeted at these non-
commodity outputs and their effects must be weighed against the
environmental damage and other distortions in resource allocation
which are also generated. Commodity output and input-linked
measures have decreased since the mid-1980s, which, together with
the introduction of agri-environmental measures, has reduced some
of the pressures on the environment. However, commodity output
and input-linked measures still accounted for three-quarters of the
total OECD support to farmers in 2003. Therefore, policy measures
need to be evaluated in the context of the overall economic and
policy environment of the country where they are in place.

20
Supply controls
offset some
environmental
pressure6
and . . .
A notable feature of agricultural policy has been the introduction
of production limits or quotas in some countries to limit the
expansion of agricultural production under high price and payment
support schemes in order to bring supply more closely into line with
demand on the domestic market. For example, quota regimes govern
the production of sugar and milk in the European Union; milk, eggs
and some poultry in Canada; tobacco in the United States; and milk
in Switzerland and Japan. Compulsory set-aside land is also applied
with respect to support for cereals in some countries, for example, the
EU. Furthermore, a number of programmes limit the quantity of a
given commodity or factor of production eligible for support, as is the
case with certain crop programmes in the United States, and headage-
based beef and sheep premiums in the EU.
. . . production
constraints limit the
effects of commodity
production-linked
support . . .
These constraints on production have had an impact on the level
and structure of agricultural production, and consequently on limiting
the effects of commodity production-linked support on the
environment, although they have not been introduced primarily as
environmental measures. To the extent that they impose a binding
limit on production they could be expected, in particular, to dampen
the adverse environmental impacts of commodity production-linked
support measures at the intensive and extensive margin. Where
quotas have “locked-in” the regional distribution of production they
have contributed to the maintenance of farming in less economically
competitive areas. To the extent that farming in these areas is also
considered as providing significant environmental benefits, quotas
have a positive environmental impact. However, it is unlikely that the
geographical distribution of quotas – implemented for production
reasons – is optimal from an environmental point of view. In practice,
a range of other factors tends to shape the environmental effects of
such measures, and the overall environmental impacts of supply
controls have been mixed.
For example, the environmental impacts of supply management
schemes in agriculture often depend crucially on the activities that
replace the production activities subject to restrictions. The milk
quota system that was introduced in the European Union in the
1980s, for example, led to some farmers shifting to beef and sheep
production in order to use their idle production capacity, with total
stocking densities actually increasing in some EU member states.
Similarly, the environmental effects of crop set-aside measures
depend critically on how the land is used, whether idled or used for
other commodities, and on the duration of idling a given area of land.
. . . but may
give rise to other,
unintended pressures
on the environment.
Production restrictions may also create other unintended
environmental pressures. For example, the imposition of milk quotas
in many OECD countries led to production concentration and,
together with higher milk prices, many farmers attempted to lower
their production costs by reducing the number of cows and increasing
milk yields per cow. This was often achieved by the increased use of

21
concentrated feed and a reduction of the area used for grazing
animals, thereby increasing the intensity of dairy production and
environmental pressures in specific localities.
The benefits to the
environment of set-aside
land depend on the quality
of the land in question.
Land set-aside schemes generally provide farmers with the
incentive to set aside their poorest-quality, least profitable land. The
environmental effects of this practice tend to vary depending, among
other things, on the quality of the natural resources associated with
the land set aside, especially biodiversity and landscape. The
environmental effects of rotational set aside can be similarly mixed.
Supply controls
combined with high
levels of production-
linked support can lock-in
certain environmental
outcomes.
It is also important to note that supply control measures applied in
combination with high levels of commodity production-linked
support can introduce rigidities in agricultural production structures.
This can impede structural adjustment, particularly where non-
tradeable production rights are assigned to farmers, and can have the
effect of locking-in certain environmental outcomes.
Cross-compliance
indirectly targets
environmental objectives
through agricultural
support measures,7
. . .
Cross-compliance conditions link the receipt of agricultural
budgetary payments to a requirement to meet certain environmental
objectives. Farmers who choose not to comply with such
requirements are not eligible for such payments. Environmental cross
compliance thus limits the environmental impacts of production-
linked support payments. Cross-compliance conditions are well
established in the United States and Switzerland, and are becoming
increasingly common in the European Union, following their
introduction as a voluntary option for member countries to apply
under the Common Agricultural Policy (CAP) as part of the Agenda
2000 package, and as a mandatory element in the 2003 CAP reform.
Cross-compliance conditions are seen in some countries as a
means to integrate environmental objectives into agricultural
budgetary payments. Although there is still a need to deepen the
understanding of the linkages between such policies and their
environmental effects, the main potential advantages and
disadvantages of cross-compliance can be summarised as follows:
. . . allows a better
harmonisation of
agricultural and
environmental
policies, and . . .
x Cross compliance allows a better harmonisation of agricultural
and environmental policies, improves compliance with existing
legislation and codes of practice, and contributes to the
involvement of producers who would not enrol on a voluntary
basis. Cross-compliance may heighten farmer awareness of the
environmental consequences of their actions, but there is no link
between the level of support received and the actions undertaken.
. . . may increase
public acceptance of
support to farmers, . . .
x Cross compliance may increase public acceptance of support to
farmers. However, cross compliance is not a policy option in the
context of market price support (MPS), which encourages
production intensity and is still the predominant form of
agricultural support in many OECD countries. MPS applies
across the board to all farmers, while cross compliance requires

22
support to be separable between farmers as it would not
otherwise be feasible to exclude non-compliant farmers from
receiving such support.
. . . but there may be a
mismatch between areas
under cross compliance
and environmentally
sensitive areas.
x The interest of farmers in applying cross-compliance conditions
will vary according to the extent of their dependence on
budgetary payments, and mainly affects the behaviour of farmers
who depend heavily on such support. But there is no particular
correlation between these farmers and those who farm the most
environmentally sensitive land. Moreover, those areas not under
cross compliance may be some of the most environmentally
sensitive. Hence, there is likely to be a mismatch between the
areas of land and farming systems over which cross-compliance
is able to exert the most environmental leverage and the areas
and systems over which leverage is required.
Changes in the level
of support reduce the
effectiveness of cross
compliance, . . .
x Any change in the level of support will change the effectiveness
of cross compliance. Cross compliance involves the risk of
losing environmental leverage the more that commodity
production-linked support is reduced. But support can also
become equated with environmental compliance and payments
are made for doing things that farmers should be doing anyway.
And, if support is counter-cyclical, cross-compliance influence is
weakest when economic incentives for environmentally
damaging intensive production are strongest.8
. . . which does not take
into account differences
in compliance costs, and
may involve high
transaction costs.
x Where homogeneous requirements are imposed across farmers,
the fact that farmers have different compliance costs is not taken
into account. On the other hand, if compliance conditions were
to take heterogeneous compliance costs into account, then
administrative and monitoring costs would be higher. Although
administrative costs may be lower than in the case of voluntary
schemes, an administration may need to be set up in order to
target cross compliance to the most environmentally sensitive
areas; tailor management prescriptions to local circumstances;
and monitor and enforce compliance – all of which may involve
high transaction costs.
Agri-environmental measures: how have they developed?9
There is a wide range
of different agri-
environmental measures
in place . . .
In response to the growing attention focused on the effects of
agriculture on the environment, agri-environmental measures have
assumed a more prominent role in agricultural policy in OECD
countries in the past two decades (Box 1). OECD countries currently
address environmental issues in agriculture with a plethora of
sometimes overlapping measures, combining elements of direct
regulation, economic instruments, education, persuasion and
community involvement. The key features of the measures currently
in place are that:
x emphasis is put on setting targets or thresholds especially for
pesticide use, water quality, and ammonia and greenhouse gas
emissions;

23
x regulations are often used to enforce particular farming practices
(e.g. manure storage), supported by fines and charges for non-
compliance;
x the use of agri-environmental payments varies considerably
across countries as they are variously intended to contribute
towards the cost of meeting regulations; compensate for income
lost by adopting certain practices; and reward farmers for
providing environmental services;
x the use of taxes and charges is very limited; and
x other market-based approaches, such as tradeable permits and
voluntary community-based approaches are limited but of
growing importance.
Box 1. Main agri-environmental measures in OECD countries
European countries and the United States, in particular, have substantially increased the use of incentive
payments in the past decade to improve environmental quality in agriculture. Some notable trends include the
growing use of payments to support the adoption of less-intensive farming practices; land retirement payments
tailored to specific environmental objectives; and transitional payments to assist farmers in implementing
structural changes to benefit the environment. In budgetary terms these policies are becoming increasingly
significant – for example, total EU expenditure on agri-environmental payments is projected to increase by 68%,
from an average of EUR 2.2 billion per annum in the 1994-99 period, to EUR 3.7 billion per annum over the 2000-
06 period.
Some countries, including Australia, Canada and New Zealand, have made widespread use of
community-based approaches to address environmental issues – e.g. through supporting collective action to
solve environmental problems, variously known as landcare groups or conservation clubs. These approaches
tend to take advantage of farmers’ self interest in environmental conservation and make use of local expertise in
solving environmental problems.
All OECD countries impose regulatory requirements to address the negative effects of agricultural
activities on the environment, ranging from outright prohibitions, to standards and resource-use requirements. In
many cases these requirements have been extended or developed over the past fifteen years. An increasing
number of regulatory requirements derive from state, provincial, regional or local measures under the framework
of national umbrella legislation, in order to accommodate the local nature of many environmental concerns.
There still appears to be only limited application of taxes and charges to directly integrate the
environmental costs of agricultural activities into farmers’ production decisions – particularly compared to the
application of such measures in other sectors. This in part reflects the logistical difficulties of applying such
measures in agriculture, but may also reflect differences in how property rights are regarded in agriculture
compared to other sectors. Taxes and charges on farm inputs are, however, sometimes used. Tradeable rights
do not appear to play a significant role in agri-environmental policy, although they are applied in the Netherlands,
and on a state/regional basis in the United States and Australia.
Many OECD countries have directed greater attention towards improving the knowledge-base relating to
environmental issues in agriculture through increased spending on agri-environmental research, often
undertaken in co-operation with the private sector. Generally, greater emphasis has also been placed on
communicating information to farmers on environmental issues via technical assistance and extension, in order
to induce voluntary changes in farming practices and on improving environmental outcomes, including through the
adoption of low input and organic farming systems.
_______________________
Source: Agricultural Policies in OECD Countries: Monitoring and Evaluation 2003 (OECD, 2003).

24
. . . but it is those
providing payments for
addressing environmental
issues that have increased
in many OECD countries.
Although having different objectives, many policies directly or
indirectly address environmental issues in agriculture. Among these
policies, those providing payments for addressing agri-environmental
issues have tended to increase in many OECD countries and currently
account for about 3-4% of producer support (PSE) on average in the
OECD area. However, this figure does not include policy measures
attaching environmental conditions to production-linked support
policies (such as cross compliance), or support for general
environmental services, such as research, education, training and
information. In some countries, many transfers to producers are
granted with multiple objectives, including the provision of
environmental services, while in other countries costs to farmers of
implementing environmental regulations are subsidised.
There is some evidence
of environmental
improvements due to
agri-environmental
measures.
Some studies point to evidence of environmental improvements
generated by these programmes – for example, they have been
variously credited in Europe and the United States with reducing soil
erosion, limiting pressures from input use, constraining water pollution
and overgrazing, and contributing to maintaining biodiversity and
valued cultural landscapes. Nevertheless, agri-environmental measures
in many OECD countries are at a relatively early stage of
development. Therefore it is difficult to assess the extent to which they
have provided environmental services or counteracted the negative
environmental impacts of agricultural support or practices.
Payment or charge: when should farmers pay for pollution and be paid for services
provided?10
There appears to be
greater scope for full
cost internalisation, . . .
There appears to be more scope for full cost internalisation to
stimulate incentives to correct environmental damage and encourage
innovation in pollution treatment, thus minimising long-term
compliance costs. The relative absence of environmental taxes and
charges and the dominance of incentive payments in OECD countries,
however, suggest that farmers in some countries may have retained
broad implicit or “presumptive” rights in the use of natural resources.
This has implications for the level and duration of compensation to
farmers for any diminution of those rights, and thus for decisions taken
by farmers.
. . . but clearer
definitions of property
rights in agriculture
are needed.
In some cases, therefore, there may be a need for the application of
more clearly defined boundaries – “property rights” – in agriculture.
This would indicate where farmers should be held liable at their own
cost for environmental damage, and where they could be remunerated
for providing environmental services that go beyond usual “good
farming practices”. Whether farmers:
x are required to pay depends on the extent of market failure
defined by permitted pollution levels, rights to pollute granted to
farmers and other sectors, and the costs of identifying polluters
and controlling pollution; and whether they

25
x are given entitlement to be paid depends on the extent of market
provision defined by the amount of environmental outputs
(goods and services) remunerated through agricultural sales
relative to the desired amount, and the costs of identifying
providers and delivering payments.
Environmental regulations: do they hinder competition?11
Environmental
regulations are
increasingly affecting
agriculture . . .
Increasingly, economy-wide environmental policies aimed at
specific environmental problems (such as reducing water pollution) are
having an effect on agriculture, as one of the main sectors involved in
this respect. Governments are also introducing national environmental
targets and thresholds, which also affect agriculture, such as those
concerning ammonia and greenhouse gas emissions.
. . . but they are
insufficient to explain
differences in
competitiveness,
and . . .
Differences in environmental regulations affect relative production
costs, producer competitiveness and trade patterns. Differences in
production costs due to regulations should be expected to the extent
that countries vary in their endowment of natural resources, pressures
on those resources, and public preferences. Even if all costs from
agricultural production imposed on the environment were paid by
farmers, this would not eliminate the differences in those costs
between countries - just as the costs of labour, land and capital also
differ. Analysis of manure management regulations in the pig and
dairy sectors indicates that the impact of variations in the stringency of
regulations on farm costs is not sufficient to explain differences in
competitiveness between OECD countries. In addition, support has in
some cases been provided to partly offset the increased costs imposed
by environmental regulations, which is generally not the case with
labour and other regulations. Support payments to offset the cost of
regulations need to be assessed in relation to the implementation of the
polluter-pays-principle (PPP).
. . . may raise welfare by
improving environmental
performance.
Even if environmental regulations in some countries raise farmers’
costs and are perceived to reduce competitiveness, they may raise
welfare by improving environmental performance. The impact of
regulation costs on farmers may also be reduced by improved
management, where they encourage productivity gains and (with
labelling and certification) the receipt of marketing premiums. The
cost of environmental regulations imposed on different farming
systems thus needs to be assessed in relation to the resulting
environmental benefits. A one-size-fits-all requirement, particularly
when focused on a specific farming system, may be neither
environmentally effective nor economically efficient.
Trade liberalisation: good or bad for the environment?12
Trade liberalisation has been limited, selective and recent (since the
Uruguay Round concluded in 1994), varying considerably across
countries and commodities. On average, however, OECD domestic
commodity prices have fallen on average from around 60% above
border prices in the mid-1980s, to just over 30% in 2001-03.

26
Reductions in trade
barriers can have
both beneficial and
harmful effects on
the environment . . .
A reduction in trade barriers affects the environment in a number of
ways, both beneficial and harmful. These impacts occur through
changes in the scale of economic activities, the structure of production
in countries, the mix of inputs and outputs, and production
technologies. Some of the impacts are felt domestically, for example
groundwater and surface-water pollution from fertiliser and pesticide
run-offs, and changes in land-use that affect landscape appearance,
flood protection, soil quality and biodiversity. Others occur
internationally, with shifts in production across countries, trans-
boundary spillovers (such as greenhouse gases), changes in
international transport flows, and the potential introduction of non-
native species, pests and diseases along with agricultural imports.
. . . but measuring
these effects is difficult.
Measuring these various effects is a difficult task, as the wide
diversity of agricultural production systems, natural conditions and
regulatory approaches means that environmental impacts, both positive
and negative, will vary between countries, regions and localities. The
available evidence suggests that lower trade barriers will cause
production to decrease in countries with historically high levels of
fertiliser and pesticide application, thereby relieving environmental
stresses in these areas. At the same time, output is likely to increase in
countries that can accommodate an increased use of agro-chemicals
relatively easily, owing to low levels of fertiliser and pesticide
application. Some analytical work shows that environmental pressures
at regional level may increase in these countries.
While regional differences are not such a problem for greenhouse
gas emissions since here the environmental concern is global, there
often exist “hot spots” caused by nutrient pollution of water, the
environmental impacts of which may be many times more severe than
is shown by national-level indicators. Moreover, although trade
liberalisation will increase the volume of products transported between
countries, and raise greenhouse gas emissions associated with
transportation, such an increase is likely to be very small in
comparison to emissions generated by production (at farm level), by
domestic trade, or by consumption (transport from the retailer to
home). Even though there has been some abandonment of farming
with high environmental values, there is little evidence as to whether
or not this has been due to trade liberalisation.
Benefiting from the
positive environmental
impacts of trade
liberalisation requires
that policies redress
negative impacts.
If policy makers seek to reap the positive environmental impacts of
trade liberalisation, while mitigating the negative ones, in general, the
appropriate policies are likely to conform to those prescribed in the
case of market failure generally. Where trade improves the
environment through positive (or fewer negative) externalities, the
benefits of further reform are clear. In the case of additional negative
externalities, there will be a need for policy measures that redress these
impacts. In general, this is likely to involve correcting the externality
at source, for example by taxing or regulating production practices

27
rather than by erecting trade barriers or halting their reduction. In the
case of global public goods (e.g. biodiversity or climate change)
national policies may need to be complemented by international
environmental agreements.
Agri-environmental policies: how effective and efficient are they?13
Evaluating the
environmental
effectiveness and
economic efficiency of
policies is complex.
Evaluating the environmental effectiveness and economic efficiency
of agri-environmental measures is a complex exercise. Compared to
the analysis of more conventional agricultural policies (which is
undertaken mainly in terms of the effects of price support and input
subsidies on production, prices and trade), analysis of agri-
environmental policies is difficult in terms of understanding the links
between agriculture and the environment and in quantifying the
influence of policies. Nevertheless, a growing number of OECD
countries have recently set in place evaluation frameworks and
procedures, drawing on advances that have been made in
environmental monitoring in agriculture, including the development of
agri-environmental indicators. These evaluations should advance the
understanding of the cost-effectiveness of agri-environmental policies,
and thus potentially identify good policy practice.
Policies need to be
targeted at clear
objectives.
Experience shows that the effectiveness of agri-environmental
policies tends to be greater when the environmental objectives are
clearly specified and the actions required by farmers are closely
targeted to the objectives, which may include tailoring measures to the
localised nature of many environmental concerns. Effectiveness also
tends to be enhanced when farmer compliance is closely monitored
and assessed, and training and advice are provided to ensure that
farmers are sufficiently informed about the best ways to implement
measures. In practice, however, the transaction costs of implementing
agri-environmental policies – given the often localised nature of
environmental issues in agriculture – can limit the extent to which
many of these conditions can be fulfilled.
A lack of policy
coherence in some
OECD countries . . .
A lack of policy coherence can be found in a number of OECD
countries where agri-environmental policy measures and agricultural
support measures can be seen as pulling in opposite directions. It is
notable that countries with relatively low levels of production-linked
support are those that tend to rely more on market-related and co-
operative approaches. On the other hand, many of the countries that
make the most pronounced use of agri-environmental payments also
tend to have relatively high levels of market price support and other
output-linked payments. The coexistence of such policies can make the
attainment of environmental objectives less certain and generate costs
that would not otherwise exist. It follows that the reform of
agricultural policies would assist the achievement of economic and
environmental objectives, and would contribute to improve policy
coherence.

28
. . . means there is a
need for improved co-
ordination on the part
of the authorities involved
in agri-environmental
policy, and . . .
Another key element of improving policy coherence and efficiency
is the need for appropriate co-ordination within and between
government authorities and other institutions involved in agri-
environmental policy, in order to ensure a comprehensive response to
environmental needs, and to avoid the duplication of effort and waste.
Moreover, the increasing interest of farmers in the integrity of eco-
system services draws particular attention to the importance of
information, advice and training for improving the efficiency of any
action addressing environmental issues in agriculture.
. . . a role for
information, advice
and training to assist
farmers in identifying
environmental
concerns.
Most farmers fully understand how to manage the soil, water and
biological resources at their disposal in order to maximise commodity
output, at least in the short term. But they can often be unaware of the
long-term consequences of current farming practices on these
resources, or of the alternatives available. Building on farmers’ interest
in environmental stewardship by making sound advice and information
available can help overcome resistance to necessary changes and
ultimately minimise the need for more costly agri-environmental
policy measures. A further benefit of providing information in this
way is that farmers are assisted in identifying emerging trends in
consumer concerns relating to the environment, and thus encouraged
to develop new market opportunities.
Which mix of policy measures and market approaches is optimal?14
Environmental
objectives need to be
compatible with other
policy objectives.
There is a need to ensure the compatibility of environmental
objectives with policies that have economic, social, trade and other
domestic and international objectives. Defining the rights and
responsibilities of farmers vis-à-vis the rest of society is crucial in
order to determine who pays for fulfilling environmental objectives.
The attribution of property rights that define the desired level of
environmental performance to be achieved through the internalisation
of both environmental costs and benefits has important implications
for the distribution of income and wealth and for equity. Such
attribution is also crucial in allowing markets to play a greater role in
arriving at the desired environmental outcomes.
Policy reform should
enable market signals to
determine more efficient
uses of scarce resources.
Policy reform (in particular, the reduction or removal of commodity
production-linked support) should enable market signals to determine
a more efficient use of scarce resources and help improve
environmental outcomes where it reduces production and
environmental pressures. With policy reform, comparative advantage
can be expected to lead to a different geographical distribution of
production. It can also stimulate a different but more efficient pattern
of specialisation and intensification of agriculture together with
changes in the scale of production units and adoption of technologies,
with follow-on environmental effects.

29
In many cases, reform can be expected to reduce incentives for
fertiliser and pesticide use, pressures to convert environmentally
vulnerable land to farm production, and other stresses such as
irrigation water withdrawals. But, as previously noted, there are also
concerns in some countries about possible harmful environmental
consequences of agricultural trade liberalisation through increased
trade of agricultural products.
A major problem is to
identify, quantify and
value the demand for
environmental outputs.
In the absence of well-functioning markets of environmental
outputs, a major problem concerns the identification, quantification
and valuation of the demand for such outputs. The supply of such
outputs, whether jointly produced with agricultural products or not,
will be forthcoming if farmers (and others) receive the appropriate
signals. The transmission of such signals is often complicated or
distorted by the existence of varying forms and levels of agricultural
support. In general, market-based approaches (tradeable permits and
rights, pricing environmental services) and voluntary co-operative
systems are most common in OECD countries with the lowest support.
Policies need to
complement, not work
against, the market.
The market is increasingly demanding farm goods that satisfy
private environmental performance guidelines, through contracts
between retailers and farmers, and public or private certification and
labelling schemes (e.g. for organic products, or low-input farm
systems). The challenge is to explore how far environmental outputs
associated with agriculture can be remunerated through markets and
quasi markets (e.g. trusts, clubs, local payment for local provision),
rather than budgetary payments at national level. Experience has
shown that policies to support organic production, for example, can
impede market signals, and affect trade competitiveness (Box 2).
Policies need to complement, not work against, the market.
Box 2. Organic agriculture
Organic agriculture is expanding in all OECD countries to meet increasing consumer demand, although it still
only accounts for a relatively small share of agricultural production and food consumption. It is no longer limited to
those farmers for whom organic production is part of an holistic life-style, and who sell through specialist outlets,
but has extended into the mainstream of the agri-food chain as an economic opportunity to satisfy a niche market
at premium prices. Organic farming is generally more environmentally friendly than conventional agriculture but
may require more land in some countries to provide the same amount of food and often requires more labour in
place of purchased fertilisers, pesticides and animal health care products.
In most OECD countries, organic farming information, standards, certification and labelling are in place or
being developed by the organic sector and governments, intended to aid consumer choice. But the proliferation of
labels and standards can confuse consumers, and differences between schemes can impede international trade.
In most countries, market forces largely drive the development of the organic sector but a number of
governments, mostly in Europe, offer financial incentives to farmers to convert to, and continue in, organic
production on the basis that some environmental benefits are not captured in the market. Such incentives are
higher than would otherwise be the case where existing support to agriculture raises the cost of entry into organic
production. There has also been some shift in publicly financed agricultural research towards organic systems,
while in a few countries procurement policies feature the purchase of organic food by public institutions.
_______________________
Source: Organic Agriculture: Sustainability, Markets and Policies – Washington, D.C. Workshop (OECD, 2003).

30
What future direction for agri-environmental policies?15
Agri-environmental policy
will continue to remain an
important issue in many
OECD countries.
There seems to be little doubt that agri-environmental policy will
continue to remain important in many OECD countries. In the
United States, the 2002 Farm Security and Rural Investment (FSRI)
Act provides for an 80% increase in funding for agri-environmental
purposes over six years, while a feature of the European Union’s
2003 CAP Reform is the strengthening of funding for Rural
Development measures – including agri-environmental programmes –
over the 2006-12 period. In 2002, Australia launched a number a
new agri-environmental strategies, including a National Market-
Based Instruments Pilot Programme to investigate the application of
market-based instruments in addressing environmental issues, while
Canada’s recently agreed Agriculture Policy Framework features a
range of new environmental policy initiatives.
Agri-environmental policy measures currently implemented in
OECD countries have in general been introduced in response to
domestic, regional or local environmental issues. But international
pressures also look likely to exert a growing influence over agri-
environmental policy in the future. These pressures include
commitments relating to a range of international environmental
agreements to address trans-boundary environmental issues, such the
1997 Kyoto Protocol, which specifies greenhouse gas emission
targets for 2008-12, and the Convention on Biological Diversity,
which requires signatory countries to develop national strategies for
the conservation and sustainable use of biological diversity.
Farmers need appropriate
policy and market signals
so that environmental costs
and benefits can be taken
into account.
The effects of agricultural policy reform on the environment in a
given country will vary depending on a wide range of factors, such as
the overall policy framework (including environmental regulations);
the international competitiveness of its agricultural sector;
technological change and the nature of factor and product markets;
and production alternatives such as those illustrated by the growing
interest in developing agricultural biomass markets (Box 3). Reform
itself cannot be expected to stimulate all the environmental amenities
demanded by society, or to sufficiently reduce environmental harm.
Where agricultural producers do not have appropriate incentives to
take all the environmental costs and benefits to society of farm
activities into account in their decisions, further action is needed.
There is unlikely to be a
general “one-size-fits-all”
formula for dealing with
environmental concerns.
There is unlikely to be a general “one-size-fits-all” formula for
dealing with environmental concerns and achieving an optimal mix
of policy and market approaches across OECD countries. The first
step is to remove policy measures that raise pressure on the
environment. There will still be an on-going role for policies
addressing environmental issues in agriculture, including an
appropriate regulatory framework, information-based strategies and
economic instruments. In justifying policy intervention it will be
imperative to establish, firstly, that markets alone cannot deliver the

31
environmental outcomes required; secondly, that intervention would
promote rather hinder their achievement, while enhancing economic
welfare as a whole; and, thirdly, that the policy mix is the most cost-
effective of the available intervention options.
Box 3. Agricultural biomass: potential for bio-energy and bio-materials
The 21
st
century could see a switch from the fossil-fuel to the biological-based economy. The projected prices
of fossil fuels over the next 30 to 50 years may continue to ensure the dominance of the fossil-fuel economy.
However, the price of bioplastics is already competitive with petroleum-based plastics at the top end of the
market, and some biofuels, such as ethanol, are easier to exploit for their market potential than fuel cells.
Across OECD and many developing countries there is growing interest, from both governments and the
private sector, in expanding markets for bioproducts from agricultural biomass. Such interest is associated with
concerns for: reducing greenhouse gas emissions; encouraging greater energy supply diversification and security;
enhancing environmental benefits, for example biodiversity conservation; and fostering a range of socio-economic
opportunities, such as diversifying and maintaining rural incomes and employment.
A policy strategy for biomass that focuses on demand rather than supply means a switch in current emphasis
from using agricultural policies, to other policy tools and market approaches. Instead of simply closing the gap
between production cost and market price, such policies would be targeted at: lowering set-up costs, encouraging
innovation, reducing technology costs, and providing large-scale test facilities. Codes of best practice could
ensure that carbon savings are delivered and wider environmental benefits are maximised.
__________________________
Source: Biomass and Agriculture: Sustainability, Markets and Policies – Vienna Workshop (OECD, 2004).
What are the main policy conclusions from the OECD work on agriculture and the
environment?
The cost of protecting
the environment would
be lower in the absence of
production-linked support
measures.
The main policy conclusion from the work thus far in the JWP is
that improving the environmental performance of agriculture in many
countries involves costs that would be lower in the absence of
commodity production-linked support measures. In other words, it is
not sufficient to show that policies have been effective in achieving a
desired environmental outcome; it is also necessary to evaluate the
economic costs and benefits of such achievement, and demonstrate
which combination of policies and market actions would achieve the
same or better environmental outcome at lower cost. The choice of
policies or market actions should ultimately depend on their
combined contribution to the environmental, social and economic
dimensions of sustainable development.
There is a need to
deepen the analysis
of policy linkages with
environmental
performance.
In this respect, there is a need to deepen the understanding,
measurement and analysis of the cause-effect linkages between
policies and environmental performance; to examine the experiences
in OECD countries in order to analyse the mix of policies and market
approaches that would be most cost-effective; and to identify the
policy implications from possible future pressures on natural
resources, especially land and water. These are the areas on which
OECD work on agriculture and the environment is now focused.

32
The challenge is to
identify and understand
the complex linkages
between all factors shaping
agri-environmental
outcomes, and . . .
Such work involves a number of challenges in identifying and
analysing the complex linkages between the multitude of factors
(e.g. market developments, policies and other exogenous factors such
as natural conditions and climatic events) shaping agri-environmental
outcomes. Agriculture is also characterised by the heterogeneity of
the natural resource base and production systems used by farmers,
with often site-specific environmental outcomes. Disentangling the
specific influence of policies on environmental outcomes raises
problems of identification and measurement, including the
predominance of dispersed, non-point source pollution in agriculture
and often lengthy delays in the appearance and disappearance of
environmental outcomes.
. . . to improve
the measurement of
environmental indicators.
This work requires improving the measurement of environmental
indicators in order to relate environmental performance to the
characteristics of different policy measures. These issues need to be
taken into consideration in the design and implementation of policies
and are not insurmountable, but need further development and
refinement of the conceptual and analytical framework, and
improvements in the information and data currently available.

33
NOTES
1. Summarised results of the work in the JWP can be found in Agriculture and the Environment: Issues
and Policies (1998) and Improving the Environmental Performance of Agriculture: Policy Options
and Market Approaches (2001).
2. OECD reports [22] and [24].
4. OECD report [46].
6. OECD reports [41], [42] and [48].
8. For example, when market prices are high, converting wetlands or ploughing-up highly erodible land
is economically more attractive for farmers, while there is less leverage from cross compliance, as
support is very low or nil in such circumstances.
11. OECD reports [40], [41] and [45].
12. OECD reports [40], [41] and [45].
13. OECD reports [25], [46] and [47].

34
JOINT WORKING PARTY PUBLICATIONS
The following publications present the results of the work in the JWP on agriculture and the
environment, which can also be accessed through the website: www.oecd.org/topic/.
Sustainable Agriculture and Resource Issues
[1] Sustainable Agriculture – Concepts, Issues and Policies in OECD Countries, 1995.
[2] Sustainable Management of Water in Agriculture: Issues and Policies – The Athens Workshop,
1998.
[3] A Policy Decision-making Framework for Devising Implementation Strategies for Good
Agricultural and Environmental Policy Practice, 2000.
[4] Information Note on the Use and Potential of Biomass Energy in OECD Countries, 2000.
[5] Agricultural Practices to Reduce Greenhouse Gas Emissions: Overview and Results of Survey
Instrument, 2001.
[6] Analytical Report on Sustainable Development (chapter on “Sustainable Agriculture”), 2001.
[7] Adopting Technologies for Sustainable Farming Systems – Wageningen Workshop, 2001.
[8] Biomass and Agriculture: Sustainability, Markets and Policies – Vienna Workshop, 2004.
Indicators
[9] Environmental Indicators for Agriculture Volume 1: Concepts and Framework, 1997.
[10] Environmental Indicators for Agriculture Volume 2: Issues and Design – York Workshop,
1999.
[11] Environmental Indicators for Agriculture Volume 3: Methods and Results, 2001.
[12] OECD National Soil Surface Nitrogen Balances: Preliminary Estimates 1985-1997, 2001.
[13] Agriculture and Biodiversity: Developing Indicators for Policy Analysis – Zurich Workshop,
2003.
[14] Agricultural Impacts on Landscapes: Developing Indicators for Policy Analysis – Oslo
Workshop, 2003.
[15] Soil Organic Carbon and Agriculture: Developing Indicators for Policy Analysis – Ottawa
Workshop, 2003.
[16] Soil Erosion and Soil Biodiversity: Developing Indicators for Policy Analysis – Rome
Workshop, 2004.
[17] Agricultural Land Ecosystem Functions: Developing Indicators for Policy Analysis – Kyoto
Workshop, 2004.
[18] Agricultural Water Use and Water Quality: Developing Indicators for Policy Analysis – Korea
Workshop, 2004.
[19] Environmental Indicators for Agriculture, Volume 4, forthcoming (2005).

35
Policy Studies: General
[20] Agricultural and Environmental Policy Integration: Recent Progress and New Directions, 1993.
[21] The Environmental Effects of Reforming Agricultural Policies, 1998.
[22] Agriculture and the Environment: Issues and Policies, 1998.
[23] The Agri-Environmental Situation and Policies in the Czech Republic, Hungary and Poland,
1999.
[24] Improving the Environmental Performance of Agriculture – Policy Options and Market
Approaches, 2001.
[25] Agri-Environmental Policy Measures: Overview of Developments, 2002.
[26] Inventory of Agri-environmental Policy Measures (website), 2003.
Policy Studies: Specific
[27] Forestry, Agriculture and the Environment – Madrid Workshop, 1995.
[28] Workshop on Forestry, Agriculture and the Environment: Country Case Studies – Madrid
Workshop, 1996.
[29] The Environmental Effects of Agricultural Land Diversion Schemes, 1997.
[30] Environmental Benefits from Agriculture: Issues and Policies – the Helsinki Seminar, 1997.
[31] Helsinki Seminar on Environmental Benefits from Agriculture – Country Case Studies, 1997.
[32] Agriculture, Pesticides and the Environment: Policy Options, 1997.
[33] Co-operative Approaches to Sustainable Agriculture, 1998.
[34] Business Approaches to Agri-Environmental Management: Incentives, Constraints and Policy
Issues, 2002.
[35] Transition to Full-cost Pricing of Irrigation Water for Agriculture in OECD Countries, 2002..
[36] Organic Agriculture: Sustainability, Markets and Policies – Washington, D.C. Workshop,
2003.
Trade
[37] Agriculture, Trade and the Environment: Anticipating Policy Challenges, 1997.
[38] Domestic and International Environmental Impacts of Agricultural Trade Liberalisation, 2000.
[39] Production Effects of Agri-Environmental Policy Measures: Reconciling Trade and
Environment Objectives, 2000.
[40] Agriculture, Trade and Environment: The Pig Sector, 2003.
[41] Agriculture, Trade and Environment: The Dairy Sector, 2004.
[42] Agriculture, Trade and Environment: The Arable Crops Sector, forthcoming (2005).

36
OTHER OECD PUBLICATIONS
The following publications draw on, and have been used in developing, the work of the JWP
and have been used in the preparation of this report.
[43] Agriculture and the Environment in the Transition to a Market Economy, 1994.
[44] Market Effects of Crop Support Measures, 2001.
[45] Agricultural Policies in OECD Countries: A Positive Reform Agenda, 2002.
[46] Agricultural Policies in OECD Countries: Monitoring and Evaluation, various years.
[47] Agricultural Policies in OECD Countries: Monitoring and Evaluation (chapter on “Agri-
environmental Policies in OECD Countries”), 2003.
[48] Analysis and Reform of Environmentally Harmful Subsidies: Challenges and Opportunities
(chapter entitled “Case Study on Agriculture”), 2004.

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