Revising Public Agricultural Support To Mitigate Climate Change

Generated Summary

This report, based on the World Bank’s research, examines the role of agricultural support in addressing climate change. It analyzes how government support programs in various countries impact agricultural production and greenhouse gas emissions. The study employs a case study approach, focusing on six regions to explore different agricultural support mechanisms and their climate change implications. The primary focus is to assess how public support can boost agricultural productivity, while also mitigating emissions from agriculture. The study also evaluates how support programs can be changed to better meet environmental goals, including reducing emissions and promoting the efficient use of natural resources. The research is conducted through the analysis of existing literature and the OECD’s database of farm support payments. It also relies on the analysis of the Globagri-WRR model. The research focuses on the impact of government spending, tax benefits, and market barriers on agricultural practices and environmental outcomes, particularly concerning greenhouse gas emissions and land use change. Recommendations are proposed to redirect support towards climate change mitigation, by increasing efficiency in the use of natural resources, and by conditioning payments on environmental protection. The goal is to inform policy changes that support sustainable agricultural practices.

Key Findings & Statistics

• The countries that produce two-thirds of the world’s agriculture provided an average of US$600 billion per year in agricultural financial support from 2014 to 2016.
• Half of this support came from direct government spending or targeted tax benefits, while the other half was the result of market barriers that increased prices to consumers.
• This support amounted to nearly 30 percent of the total value added by agricultural production in the countries studied.
• Agriculture generates roughly 25 percent of global greenhouse gas (GHG) emissions.
• The clearing of forests and savannas for agricultural expansion and the degradation of peat soils generate the remaining GHG emissions.
• Current agricultural emissions are about 12 billion tons per year of carbon dioxide equivalents (CO₂e).
• Without mitigation, agricultural emissions are likely to rise to 15 billion tons per year by 2050.
• In this scenario, agriculture alone will use up 70 percent of the annual allowable emissions budget for all human emissions.
• Market price support boosts prices to some farmers but at costs to others.
• Of the US$300 billion in direct spending, roughly 43 percent is designed to support farmer income, and another 30 percent supports production.
• Only 9 percent of direct spending explicitly supports conservation, while another 12 percent supports research and technical assistance.
• The EU’s domestic agricultural prices in 1986-88 were on average 69 percent above global prices. From 2014 to 2016, domestic agricultural prices in Europe were only 5 percent higher.
• For direct outlays, China and the EU together provide almost two thirds at roughly US$100 billion each.
• Significant portions of U.S. and EU spending classified by the OECD as conservation probably have limited effect.
• The largest land retirement programs to reforest highly sloped cropland and to restore degraded grasslands in vast parts of the country have been in China.
• These Chinese programs have had success in reducing soil erosion and moderate success in sequestering carbon.
• Agricultural emissions in the United States in 2010 of 700 million tons (CO₂e) were roughly equal to the total emissions of Canada from all sources.
• China’s overall prices are around 13 percent higher than international prices.
• In Japan, agricultural prices are 75 percent higher than international levels overall and Indonesian prices are 98 percent above international levels.
• The FAO projects 70 million hectares of net land use change by 2050.
• If production systems do not change, agricultural land use would have to expand by more than 3 billion hectares and total GHG emissions would reach 33 gigatons per year.
• The Globagri-WRR projection to 2050 assumes good yield growth similar to that projected by the FAO. This projection more than doubles yields of most major crops from 2006 to 2050.
• Brazil has made impressive efforts in recent years toward climate change mitigation. Deforestation alone generated 57 percent of emissions.
• By 2005, Brazil’s emissions had risen to 1.9 gigatons CO₂e/year.
• The Government of Kenya continues to partner with international donors to support dairy sector development. Kenya currently partners with IFAD through a US$20 million smallholder dairy commercialization program (IFAD 2015).
• In 2015, subsidy costs had reached US$11.6 billion per year, which is roughly five-fold more than 15 years earlier.
• Across 10 countries studied in the region, total input subsidies varied from 20 percent to 26 percent of agricultural spending from 2011 through 2014.

Other Important Findings

• Increasing agricultural productivity through enhanced efficiency in the use of natural resources is a major strategy for mitigating agricultural emissions. This involves efficient land use, effective water management, and the optimized use of animals and chemicals.
• Avoiding or managing agricultural land expansion, especially in areas with high yield potential, and restoring unproductive lands are crucial for climate change mitigation.
• Implementing known management practices, such as efficient use of fertilizer, manure management, and rice production methods, can help reduce emissions.
• Advancing innovation in management, including research and development of new technologies for fertilizer efficiency and methane reduction, is essential.
• Market price supports boost prices to some farmers but at costs to others.
• Input subsidies have been and remain a particularly problematic form of coupled subsidies.
• Price support payments and trade barriers help reduce farmer risk and maintain income for beneficiaries, but they are inefficient in addressing the risks to poorer, smaller farmers, who are prone to poverty traps.
• The United States and the European Union (EU) have moved to impose some environmental conditions on receipt of farm payments.
• The largest land retirement programs to reforest highly sloped cropland and to restore degraded grasslands in vast parts of the country have been in China.
• The case studies also highlight initiatives that hold promise for climate change mitigation. They detail efforts in Brazil to tie farm credit to forest protection while boosting grazing productivity. The India case study highlights efforts to require that nitrogen be coated with a compound designed to reduce losses and increase efficiency.
• Such integrated projects target funds to their best uses, encourage farmers to achieve higher levels of performance, and occasionally support these efforts with ongoing research and technical assistance.
• In Europe, coupled payments to farmers provided more than 98 percent of total support as late as 2004. By 2016, those coupled payments accounted for less than 60 percent.
• Governments can condition access to support payments or subsidized credit programs for farmers on conduct that avoids clearing natural areas. Governments can, at a minimum, deny subsidies for food produced on newly cleared lands.
• In the United States, the restrictions on additional land clearing have extended only to wetlands and efforts to do the same for native grasslands have stalled.
• For nitrogen, that mainly means applying nitrogen at an agronomically recommended rate, but advanced technological approaches to enable crops to absorb even more of the available nitrogen.
• Because crop and pasture yields need to grow dramatically to avoid more deforestation and other conversion of native habitats, mitigation priorities include help for farmers to boost yields and livestock productivity.
• In China, the government has recently increased support for reforestation and regenerating grasslands and increased support for research toward farm practices that could help reduce emissions.
• In the United States, the USDA mitigation plan has only modest goals to reduce agricultural emissions.
• As a highly sophisticated agricultural producer, the United States could play a major role in advancing agricultural climate mitigation by using its funds to support these innovations.
• In China, despite the government’s efforts, agricultural emissions remain high, particularly from nitrogen use, enteric fermentation, and rice and manure management.
• In Brazil, linking government funding for sustainable intensification with forest protection offers a promising model for climate change mitigation.
• The experience indicates that governments are still looking for effective models to build crop productivity on depleted soils.
• Overall, the evidence suggests that while EU conservation conditions and directed spending are likely to have some climate benefits, they appear unlikely at present to contribute significantly to climate abatement.

Limitations Noted in the Document

• The OECD system does not include all ways in which government supports agriculture.
• The analysis also does not consider “transfers to consumers from taxpayers” in the OECD database.
• The OECD database divides the voluntary constraints into environmental, animal welfare, and others.
• The effects of China’s retirement program are discussed in the case study section.
• The case studies do not account for the global GHG effects of market-distorting subsidies in any one country.
• The extent to which these conditions have been enforced is hard to assess.
• If Europe alone reduces production to reduce emissions, other countries may compensate by producing more.
• The studies cited focus on domestic, not global, effects. Increased production and the consequential environmental effects in one country generally lead to less production and fewer environmental effects in other countries.

Conclusion

The report underscores the critical role of agriculture in addressing climate change, emphasizing that governmental support plays a significant role in shaping agricultural practices and emissions. The study concludes that the global community must redirect financial and policy instruments to improve climate outcomes, and emphasizes the importance of enhancing the efficiency of natural resources usage. The report highlights the need for agricultural innovation, the redirection of support, and the incorporation of environmental conditionality into agricultural subsidies. The report indicates the need for a balance between boosting yields, reducing emissions, and avoiding further deforestation, and calls for greater collaboration to address these challenges. One of the key findings is that the current agricultural support mechanisms, while substantial, often fail to adequately address environmental objectives. The report advocates for a shift towards performance-based programs that reward farmers for adopting sustainable practices, and it calls for a greater focus on innovation, particularly in areas like nitrogen use efficiency and methane reduction. It also states that these changes cannot be counted as making major contributions to climate change mitigation in agriculture alone. The report’s findings show that market price supports are the most difficult to redirect, but with specific interventions these can be moved towards climate change mitigation. The importance of international cooperation is highlighted, with an emphasis on knowledge sharing and best practices among countries. The report suggests that the EU’s approach, which combines environmental conditions with financial support, offers a model for future policies. The Brazil case study, which focuses on incentivizing cattle ranching, emphasizes the potential for Brazil to dramatically expand agricultural production without clearing more land. However, the study recognizes that many of the support programs are limited because of their focus on larger farms, which are less likely to need financial assistance. The focus on the integration of farm support payments into coordinated projects that hold the most promise for advancing environmental objectives including climate change mitigation should be given the highest attention. In the countries analyzed in this report, government support already reaches almost one-third of the value added by agricultural production. Reforming the focus and delivery of this support could assist the effort to stabilize the climate. The report suggests a move toward market-based approaches, with graduated payments for better environmental performance, and underscores the need to integrate support with legal requirements, to prevent actions that are not supported by law. The report emphasizes the need to advance climate action, that is, the integration of farm support payments into coordinated projects, that hold the most promise for advancing environmental objectives including climate change mitigation. The recommendations advocate for a comprehensive approach, recognizing that effective climate action requires coordinated policies, rigorous monitoring, and continuous improvements. Ultimately, the report’s message is clear: reforming agricultural support is essential to achieving both environmental and economic sustainability. Governments should also prioritize coordinated projects across multiple producers to explore critically needed innovations in farm management, and should support those projects with research and technical assistance. The most challenging support to redirect is the support that comes from consumers through higher prices as a result of market price supports.