Revising Public Agricultural Support to Mitigate Climate Change
May 19, 2020 - Author: Timothy D. Searchinger, Chris Malins, Patrice Dumas, David Baldock, Joe Glauber, Thomas Jayne, Jikun Huang, Paswel Marenya
Timothy D. Searchinger, Chris Malins, Patrice Dumas, David Baldock, Joe Glauber, Thomas Jayne, Jikun Huang, Paswel Marenya (2020). Revising Public Agricultural Support to Mitigate Climate Change. Development Knowledge and Learning, World Bank, Washington, DC.
The countries that produce two-thirds of the world’s agriculture provided US$600 billion per year in agricultural financial support on average from 2014 to 2016. Half of this support occurred through direct government spending or targeted tax benefits and half occurred through market barriers that increase prices to consumers. This support amounted to nearly 30 percent of the total value added by agricultural production in these countries. This report addresses the extent to which these transfers help boost agricultural production and mitigate emissions from agriculture and how support programs might be changed to do better.
Agriculture generates roughly 25 percent of global greenhouse gas (GHG) emissions, of which slightly more than half come from the production process, which generates mainly methane and nitrous oxide. The remaining GHG emissions from agriculture are generated through the carbon released by the clearing of forests and woody savannas for agricultural expansion and the degradation of peat soils. Absent mitigation, the current agricultural emissions of roughly 12 billion tons per year of carbon dioxide equivalents (CO2 e) 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, including energy, that will be necessary to hold warming to international climate goals.
The single most important source of mitigation in agriculture results from increases in the efficiency with which agriculture uses natural resources and chemical inputs. That includes more efficient use of land, which includes increasing yields and so helps to avoid land use change. That also involves more efficient use of animals, water, and chemicals. These productivity gains also can contribute to increased incomes for farmers.
For productivity gains to result in climate mitigation they frequently need to be explicitly linked to the protection of forests and other native landscapes because they can otherwise encourage local land expansion. Mitigation depends particularly on improvements in management in the use of ruminant livestock (mainly cattle, sheep, and goats), which generate roughly half of all emissions from production and land conversion. To achieve climate goals, mitigation efforts must also strongly emphasize innovations, for which there are many promising options.
Only a modest portion of current agricultural support has the potential to help mitigate emissions or even to increase production efficiencies generally. The roughly US$300 billion in market price supports boost 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.
Over the past two decades, some governments have decoupled payments from conditions on farm production. Governments do so in different ways and to different degrees, but in general, this decoupling reduces the likelihood that subsidies will encourage inefficient production. Input subsidies have been and remain a particularly problematic form of coupled subsidies. Fertilizer subsidies have contributed to the overuse of nitrogen fertilizer in a number of countries, including both China and India, which has resulted in higher GHG emissions and other environmental problems. China has recently phased out fertilizer subsidies. Whether decoupling reduces global emissions depends on how production switches between regions. While decoupling is unlikely to lead to large, global GHG mitigation, the experience of New Zealand, which almost eliminated coupled agricultural subsidies overnight in 1986, illustrates potential gains through increased efficiency and reduced environmental impacts.
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. Such supports almost always benefit larger farms within a country, and market price supports benefit domestic farmers at the expense of foreign farmers. Some support payments are capitalized into land values, which benefits existing owners but not farm workers, renters, or subsequent owners.
The United States and the European Union (EU) have moved to impose some environmental conditions on receipt of farm payments. The prospect of environmental conditions holds some promise. Although enforcement is minimal in the United States, conditional payments have probably helped protect some wetlands and modestly reduced soil erosion there. They have helped protect the most valuable grasslands in Europe. Although no studies yet support the assertion, European conditions on support payments have possibly also increased compliance with other environmental laws such as limits on nitrogen. The last round of European agricultural reforms conditioned 30 percent of payments to farmers on additional conservation measures; however, the effect remains unclear and likely modest because criteria were largely unambitious.
Case studies of Brazil, China, India, the United States, EU, and Sub-Saharan Africa explore differences in support levels and approaches that confirm these general observations. 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. The evidence also suggests that the programs could do more to sequester carbon and that the forest program may have had adverse effects on biodiversity by emphasizing plantation forests.
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. Finally, the case studies detail some successful efforts in China to increase efficiency of nitrogen use and specific efforts in Africa to increase dairy efficiency by improving forage quality. The case studies also illustrate a small start toward funding integrated, coordinated projects. 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. The United States has created mechanisms for using a portion of its conservation programs for such integrated purposes. Further, integrated projects provide some of the promising uses of EU funding for rural development.
Overall, the study finds that there is substantial potential to redirect farm support toward climate change mitigation. Market price supports are the most challenging to redirect, but Europe has created a model of phasing them down while boosting direct aid. Key recommendations are as follows:
Takeaway 1: Redirect funding to focus on mitigation, including measures that increase efficiency in the use of natural resources.
Takeaway 2: Focus land retirement efforts where land is becoming abandoned, where farmland is unproductive and unimprovable and peatlands, and emphasize restoration of native forests.
Takeaway 3: Condition farm payments on protection of native areas to avoid further land clearing
Takeaway 4: Structure incentive programs so they offer graduated payments for higher climate performance.
Takeaway 5: Prioritize innovative, performance-based mitigation strategies.
Takeaway 6: Combine financial support for mitigation with requirements for improvements to avoid leakage, moral hazard, and waste of resources.
Takeaway 7: Prioritize coordinated projects across multiple producers, integrated with research and technical assistance.
Because of the importance of this redirection of support for whether countries achieve climate goals, and because of the need for international cooperation to push needed innovations, global action is required.