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The environmental impact of agricultural subsidies

The environmental impact of agricultural subsidies. WTO Symposium on Trade and Sustainable Development 10-11 October 2005 Ramesh Sharma Commodities and Trade Division FAO, Rome. Linkage between trade distortions and environment – popular views or positions.

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The environmental impact of agricultural subsidies

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  1. The environmental impact of agricultural subsidies WTO Symposium on Trade and Sustainable Development 10-11 October 2005 Ramesh Sharma Commodities and Trade Division FAO, Rome

  2. Linkage between trade distortions and environment – popular views or positions • Trade reforms offer “win-win-win” outcomes and opportunities (wins for trade, environment and development) • The “non-trade concerns” view – a certain level of distorting measures may be essential for maintaining positive externalities of agricultural production

  3. Comprehensive Africa Agriculture Development Programme (CAADP), NEPAD

  4. The agricultural “crisis” of Africa- relevant indicators of environmental and sustainable development problems (1) • Irrigation (% of arable land irrigated) - SSA 4%, Africa 7%, East Asia 29% and South Asia 41% • Soil and fertility (land classified as having low nutrient reserves) - 16% in Africa, 4% in Asia • Fertilizer use (nutrients application per hectare) - SSA 9 kg; Africa 21 kg; South Asia 100 kg; east Asia 135 kg; developed countries 206 kg • Fertilizer productivity (in terms of maize yield response) - 36% lower in SSA than in Asia and 92% lower than in developed countries

  5. The agricultural “crisis” of Africa- relevant indicators of environmental and sustainable development problems (2) • Rural infrastructures for trade, among other things • all indicators very low relative to other regions • Poverty and food insecurity • Population undernourished 194 million (1997-99), up from 168 million in 1990-92 • Daily food supply 2190 kcal in 1997-99 • Food import bill: US$ 20 billion per year

  6. And a host of environmental problems associated with these • Degraded land • Soils depleted with nutrients – no replenishment of nutrients • Soils unable to hold water and fertilizers • Poor forest cover due to overgrazing • Risks to habitat and biodiversity • Lack of adoption of resource efficient technologies, although available

  7. The CAADP is said to be a “crisis” response to a “crisis” situation - a blueprint for the recovery of African agriculture -

  8. Grossly inadequate public sector investment in agriculture is identified as the key problem

  9. Investment requirements identified by CAADP for agricultural recovery and growth(billion US$, 2002-15 total)

  10. The four “pillars” of the CAADP – many sub-components are about restoring degraded environment for sustained growth in production • Pillar 1: Land and water Management • Pillar 2: Improving rural infrastructure and trade-related capacities for market access • Pillar 3: Increasing food supply and reducing hunger • Pillar 4: Agricultural research, technology dissemination and adoption

  11. What role for subsidies in the CAADP recovery and growth plan? • Highest priority assigned to investment (infrastructures and technology) • Also high response to environmental problems • Supports the generous use of “matching grants” (the terminology for “subsidy”) from the government to reach small and marginal farmers in disadvantaged areas • On this point, similar in approach to World Bank’s new Africa Region’s Rural Strategy

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

  13. Total Non-product AMS as % of value of agricultural production

  14. But this was a measure for a period (mid- to late 1990s) when ODA was at its lowest and investment in agriculture was very low • The coming years are going to be different if NEPAD’s commitment on agriculture materialize, if WB and others increase support to agriculture as per new Rural Development Strategy and if Monterrey and other initiatives materialize • The CAADP itself sees an important role for subsidies as a means to reach the small and marginal farmers • In that case, these countries will need more policy space than they have used so far

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

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