An OECD Perspective on Using Agri-Environmental Indicators for Policy Analysis

1. OECD OCDE ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES An OECD Perspective on Using Agri-Environmental Indicators for Policy Analysis ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Wilfrid Legg Policies and Environment Division, Agriculture Directorate INFASA Symposium 16 March 2006, Bern, Switzerland 1 Directorate for Food, Agriculture, and Fisheries

2. Outline of presentation Using indicators for policy analysis What the OECD is doing Which challenges lie ahead

3. Using indicators for policy analysis

4. Background Abundant food supplies in OECD countries High public concern of farming’s environmental impact Governments also want better environmental performance Global trade and environment commitments are key drivers Markets for environmental goods are absent or function poorly Significant support given to the agricultural sector Agriculture only contributes 2% of GDP and 6% of employment, but accounts for 38% of land and 46% of water use Agricultural output up 5% since 1990, land down 4%, labour down 10%, but water use up 3% and energy 6%

5. Focus of OECD indicator work Predominantly measured at national level Stress on linking science and policy Close co-operation with governments Concern to balance indicators that are “scientifically sound” yet “policy practical”

6. Policy context High levels of support, but decline in share from output to area-based and targeted policies Wide range of commodity and country support Heightened public awareness and concern Global trade and environment commitments Significant environmental regulations On-going technical innovation and adoption

7. Composition of farm support (PSE)

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

9. Indicators can help monitor policies… Track environmental performance over time and across countries (league tables) Identify possible environmental risks in future (red alert)

10. …model policies… • Model potential policy impacts on the environment (ex ante) • Analyse and evaluate actual policy impacts on the environment (ex post)

11. ….and rank policies: • Rank different policy measures according to their effectiveness in improving environmental performance and economic efficiency • Identify characteristics of good policy practice (recommendations)

12. What the OECD is doing

13. Since 1993 OECD has been developing indicators that are: • Policy Relevant – across OECD • Analytically Sound – science based • Measurable – data availability • Easy to Interpret - unambiguous

14. Indicators have focused on: • Concepts and framework - 1997 • Issues and design - 1999 • Methods and results - 2001 • Results and policy use - 2006

15. 2006 report will cover: • Agri-environmental indicators for nutrients, pesticides, soil, water, air, biodiversity, farm management • Developments in other indicator areas • Country trends: • Agricultural sector trends and policy context • Environmental performance of agriculture • Overall agri-environmental assessment • Using indicators as a policy tool

16. Past work on qualitative analysis… • Output linked policy measures have the biggest potential effects on encouraging production • Output linked policy measures - encourage intensive production and use of sensitive land – but maintain some farm systems and production associated with environmental service provision • Production controls, cross-compliance and agri-environmental taxes/payments can diminish the harmful environmental impact of commodity support • But improving environmental performance would be less costly without commodity support measures

17. But quantitative analysis is underway… • Modelling agricultural policy changes on production is well-established, using General Trade Analysis Project model • Modelling comparative impacts of different policy measures on production uses OECD’s Policy Evaluation Model • Modelling impacts of changes in farm production (and practices) on the environment is at a relatively early stage • Linking economic and ecological models is a big challenge – aggregation, choice of environmental indicator, interpretation…

18. …and OECD is modelling policy and environment linkages • Farm level modelling approach using Finnish data, then Swiss, US and then, hopefully, Japan • Comparative analysis of different agri-environmental settings and policy measures • Modelling the effects of policy measures (agri-environmental and area payments, taxes, buffer strips…) on the environment (nutrient run off and biodiversity), farm incomes and government budgets using the OECD’s Stylized Agri-environmental Policy Impact Model (SAPIM)

19. …and results using GTAP show: • Effects of trade liberalisation scenarios on the environment in the dairy and arable crops sector using the General Trade Analysis Project (GTAP) that…. • overall, trade liberalisation generates net environmental benefits because the reduction in environmental pressure in countries where production falls is greater than the increase in countries where production rises, but….. • to maximise benefits, trade liberalisation needs to be accompanied by targeted environmental measures to deal with externalities and public goods

20. …but too early to show SAPIM results • Results of the Finnish (crop) model are being finalised • Work is starting on the Swiss (dairy) model • Discussions are underway on the US (crop?) model • Synthesis of results and policy implications due in 07-08

21. Which challenges lie ahead?

22. OECD indicator priorities • Focus on developing indicators that are policy relevant to most countries, but analytically weak and data not yet comparable across OECD countries, in the areas of soil, water and biodiversity • Update “established” indicators from time to time in conjunction with OECD’s Environmental Compendium • Advance work on using OECD indicators in the SAPIM policy model

23. Policy questions needing answers Is agri-environmental performance getting better or worse? What are the environmental effects of agricultural policies? Is trade liberalization good or bad for the environment? Can markets work to improve the environment? When should farmers pay for pollution and be paid for environmental goods and services provided? Which policy measures are most cost-effective at improving the environment with least distortion to production and trade?

24. Questions on indicator development How comparable should indicators be for policy modelling, or to track trends across countries? What scale (level of aggregation) is appropriate for policy analysis? How many indicators are needed to properly assess environmental performance – and how should they each be weighted in the absence of money values? How much measurement is needed to design and implement effective policies?

25. Finally…….. “Not everything that can be counted counts, and not everything that counts can be counted” – Einstein “In the absence of facts, anyone’s opinion is a good one. And the biggest opinion usually wins!” “You cannot manage what you cannot measure”

26. Thank you for your attention Wilfrid.legg@oecd.org www.oecd.org/agr/env