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Harmonizing Agricultural and Environmental Policies
Erik Lichtenberg Department of Agricultural and Resource Economics University of Maryland 2200 Symons Hall, University of Maryland College Park, MD 20742-5535 USA, 2001-12-01

Abstract

I discuss three general lessons drawn from economic theory and historical experience for improving the performance of agriculture with respect to environmental protection and resource conservation. First, government development of environment-friendly, resource-conserving technologies, and government investment to improve human capital, are critical if we are to reconcile agricultural productivity with environmental quality. Second, because new technologies evoke responses that are difficult to anticipate, it is essential to maintain proper incentives for environmental protection and resource conservation (e.g., taxes on the use of polluting inputs, setting prices of resources at their social opportunity costs, establishing clear property rights). Third, agricultural policies such as price supports, input subsidies, tariffs on imports and resettlement schemes are important causes of environmental and resource degradation in many countries. Thus, agricultural policy reform is necessary to improve environmental protection and resource conservation in agriculture.

Introduction

Forty years ago, increasing agricultural output was the principal goal of agricultural policies worldwide. Today, protecting environmental quality and the resource base of agriculture is becoming the primary concern in much of the world. In many respects, that shift in emphasis is an indicator — as well as a product — of success. The intensification of agriculture has enhanced productivity to the extent that the growth of food production has outstripped population growth, at least in those parts of the world spared the devastation of war. But the methods by which that intensification has been achieved — mechanization, expansion of irrigation, crop breeding, and the use of synthetic chemicals — have created new problems of environmental degradation. Pesticide and fertilizer runoff has polluted rivers and lakes. Leaching of those chemicals has contaminated groundwater. Illness and injury from exposure to pesticides — during application, in drinking water, and from misuse of containers — have become significant health problems in many developing countries. Expanded irrigation has depleted groundwater stocks and surface water, drying up rivers, lakes, and wetlands and wreaking havoc on fisheries, transportation, downstream farming, and other industries using this water.

The emergence of these problems calls for a reorientation of policies for agriculture. Increases in productivity are still needed; food is still too expensive and malnutrition still too common in many parts of the world. But productivity gains are no longer enough by themselves. If humanity is to be able to maintain progress in agriculture, policies for the agricultural sector must promote conservation of agriculture's resource base and the protection of environmental quality.

Economic theory, and historical experience of different policy approaches, suggest three general lessons for designing policies to reconcile agricultural productivity with environmental quality:

  • 1. Human capital development is essential for improving environmental protection and resource conservation in agriculture. The public sector must play a central role in the development of this human capital.
  • 2. New technologies evoke responses that are difficult to anticipate. It is thus essential to maintain proper incentives (e.g., taxes on the use of polluting inputs, setting prices of resources at their social opportunity costs, establishing clear property rights) in order to ensure that anticipated improvements in environmental protection and resource conservation from the introduction of new technologies are actually achieved.
  • 3. Agricultural policies such as price supports, input subsidies, and tariffs on imports are important causes of environmental and resource degradation in many countries. A reform in agricultural policy is necessary to improve environmental protection and resource conservation in agriculture. More broadly, it is imperative to integrate environmental protection and resource conservation into agricultural policies. In the following section, I discuss these characteristic features of agriculture, and explore their implications for policy.

Complexity, Human Capital, and Agricultural R&Amp;D

The work of T.W. Schultz and others made it clear long ago that investment in human capital is central to economic development generally. The nature of agriculture makes such investment particularly important, especially in attempts to improve environmental protection and resource conservation. Agriculture's complexity, its dependence on random factors such as weather, and the strong influence of local environmental conditions, all mean that good agricultural practices need sophisticated management.

Agriculture As Ecosystem Management

To begin, it is important to understand that agriculture is, fundamentally, a form of ecosystem management. A field sown with crop plants is an ecological community made up of many types of living organisms. They live together in an environment that consists of a natural resource base, plus man-made enhancements to that resource base. Farming is a set of activities that seeks to influence the composition of that community. Thus, we want to increase the output of ecosystem services we find beneficial (crop and livestock yields, fish and game) and, simultaneously, decrease the output of ecosystem services we find detrimental (weeds, inset pests, plant pathogens). We accomplish this goal by manipulating the environment to favor the beneficial services and create difficulties for the unfavorable ones. We enhance soil nutrients with fertilizers, manures, and other amendments to promote crop growth. We plow, apply herbicides, and weed by hand to limit the growth of weeds that compete with crop plants for nutrients, water, and sunlight. We prune fruit trees to create conditions favorable for fruit growth and unfavorable for fungus diseases.

Manipulation of the environment to promote crop and livestock production can yield other ecosystem services as joint products or byproducts. Fields and pastures can provide a habitat for fish and game which farmers harvest for food. In many parts of the United States, farmers rent out their fields after harvest to hunters of migratory waterfowl. Thus, their fields provide recreation as well as crops. The maintenance of scenic amenities and wildlife habitats is often a by-product of farming (Lichtenberg 2002).

In the past, human ability to alter the composition of crop ecosystems was limited. Farmers were more dependent on natural factors such as rain, innate soil fertility, soil texture and beneficial organisms. Stewardship of these natural resources was essential to maintaining farm productivity. Similarly, fish and game were often important in the diet of rural communities. The preservation of wildlife habitats was essential if people were to maintain the ability to harvest these foods. The majority of people were farmers, or at least members of rural communities. Overall, then, natural factors used to play a much greater role in determining human standards of living than they do today.

Technical progress has lowered the value of many of the traditional goods and services provided by the natural environment. New agricultural technologies such as chemical fertilizers and pesticides, and mechanical pumps and other machinery, have lessened farmers' dependence on soils and natural pest controls, and thus farmers' incentives to conserve them. Improvements in livestock breeding and rearing mean that people are less dependent on wild game and fish, and therefore have less incentive to conserve wildlife habitats.

At the same time, technical progress has transformed the fundamental economic character of other environmental services. Environmental resources such as nutrient absorption capacity and water were once abundant enough (relative to human usage levels) to be considered free goods. Their abundance was reflected in the lack of restrictions to limit access to them (e.g., pricing, quotas, priority usage rules, property rights). Technical progress has made these services economic goods, that is, goods scarce enough to have opportunity costs. Thus, the intensive use of chemical fertilizers has overwhelmed the capacity of the environment to absorb nutrients, creating problems of salinization and eutrophication. The expansion of irrigation has made water increasingly scarce. The development of institutions for limiting access has lagged behind, allowing problems of environmental degradation and overuse of resources to multiply unchecked.

Management Versus Capital in Improving the Productive Efficiency of Agriculture

One way to mitigate the problems of environmental degradation and overexploitation of natural resources in agriculture is to improve productive efficiency. Many environmental quality problems exist because of inefficiency in production. Raw materials that are not converted completely into finished products are disposed of into the environment, where they become pollutants. Many agricultural pollution problems are of this kind. Nutrient runoff and leaching occurs because crops do not take up all the fertilizers applied. Improving the efficiency of crop uptake would reduce the release of nutrients into the environment. Similarly, harm to human health or wildlife from pesticides is due to applications that never reach the target pests.

Efficiency improvements can also mitigate the overexploitation of natural resources. Excessive water use or drainage problems may result from inefficient irrigation methods. Both could be lessened by increasing the share of applied water actually taken up by crops (Lichtenberg 2002).

From this perspective, there often exist potential improvements in productive efficiency that would simultaneously reduce pollution. In other words, improvements in agricultural technologies may provide "win-win" opportunities for simultaneously increasing farm profitability and improving environmental quality.

These opportunities typically require the development of sophisticated farming practices and enhancements in human capital, that is, in farmers' ability to carry out more sophisticated management strategies. Management is at a premium in agriculture (compared to, say, manufacturing).

Because agriculture is basically a form of ecosystem management, it tends to be far more complex than industrial activities such as manufacturing. There is less control of production conditions in agriculture compared to manufacturing. For example, agriculture remains dependent on the weather: manufacturing, in contrast, takes place in climatically controlled conditions. Living organisms react to management efforts in complex ways: manufacturing processes, in contrast, can be simplified, and controlled with great precision. Ecosystem processes vary in different natural environments: manufacturing environments, in contrast, can duplicated again and again.

To be sure, advances in the design of farming equipment have made it possible to conduct farming operations with much greater precision. For example, low volume (drip) irrigation systems permit delivery of water (and dissolved chemicals), timed to match crop uptake. This increases the efficiency of irrigation by as much as 50%. New types of fertilizer application equipment make it possible to vary fertilizer rates in accordance with natural soil fertility. Improved pesticide spray equipment makes it possible to reduce pesticide application rates and limit spraying to areas of high infestation.

However, the potential gains in efficiency offered by such equipment can only be realized under sophisticated management systems. Thus, efficient use of drip irrigation requires a knowledge of crop uptake rates, which vary according to the stage of plant growth, weather conditions, and soil quality — all of which vary from field to field and from farm to farm. Similarly, precision fertilizer application requires a knowledge of existing soil fertility levels, which can vary substantially even within fields with a uniform soil type. Precision application of pesticides likewise requires monitoring of pest infestation levels, population counts of beneficial organisms that serve as natural pest controls, and a knowledge of potential yield damage, which varies according to pest pressure and the stage of plant growth (National Research Council 1997).

Vital Role of the Public Sector

Both economic theory and historical experience suggest that it will be governments which will play the leading role in developing farm management strategies, enhancing human capital in agriculture, and disseminating new agricultural technologies. As Huffman and Evenson (1993) have pointed out, the private sector has little incentive to develop management-intensive technologies. Patents on new farming practices or management strategies are difficult to obtain. Even if they can be obtained, they are almost impossible to enforce. It is far too easy for farmers to learn new management strategies from neighbors and relatives, and far too difficult to monitor which farmers are using them.

The same can be said for investments in human capital. New knowledge is easily transmitted by word of mouth. As a result, the returns from the development of new farming practices and/or management strategies are generally too low to justify significant private research and development (R&D). Government development of environment-friendly, resource-conserving technologies and government investment in improvements in human capital are essential if we are to reconcile agricultural productivity with environmental quality.

The development and dissemination of integrated pest management (IPM) illustrates this point. IPM is a pest management technology which has increased the efficiency of pest control, and at the same time, reduced environmental damage. The use of chemical pesticides in the years after World War II followed a manufacturing model of production. Insecticides were marketed as a tool that would allow farmers to "sanitize" their fields, that is, exercise complete control over insect populations. By the early 1960s, it was becoming clear that this approach was a complete failure. All too often, the suppression of predator insects allowed the explosive resurgence of insect pest populations, leading farmers to spray more and more frequently. At the same time, target pest populations were beginning to show resistance to the most heavily used insecticides. Threats to wildlife and to human health and safety from insecticides were becoming more widespread as well (Bottrell 1979, National Research Council 1996).

In response, researchers developed an alternative approach to insect pest control, based on the concept of ecosystem management. A basic concept was the economic threshold, that is, the minimum insect pest population causing crop losses large enough to justify the cost of insecticide application. Thresholds are often complex, since they depend on predator populations, the stage of crop growth, climate, and other location-specific factors (Mumford and Norton 1984, Pedigo, Hutchens and Higley 1986, Brown 1997). Other measures introduced included adjusting the timing of pesticide application and the areas treated, to reduce damage to non-target insects. Cultural controls were added, to make crop ecosystems less favorable to insect pests and more favorable to their national enemies. These methods, too, depend on location-specific factors

When IPM was introduced in the 1960s, it was essentially a "craft" product, a service that could be provided only by a highly trained, skilled practitioner. It could not be used by just any farmer, it needed farmers with a sophisticated understanding of crop ecosystem dynamics. As a result, the private sector had little incentive to develop and market IPM systems. In both the United States and Asia, it was the public sector (researchers in state national agricultural experiment stations and colleges) who were responsible for developing IPM strategies for different crops, and for disseminating them to farmers. Governments also took on the task of training IPM consultants capable of making recommendations and teaching farmers how to follow them (Wearing 1988).

IPM remains a management-intensive craft product today, even though advances in computer technology have made it possible to develop computerized decision support systems. Limits to human knowledge about crop ecosystem dynamics, and the need for location-specific information, combine to keep IPM highly management-intensive. Lack of data limits the reliability of models. The appropriate combinations of control measures vary so much from place to place that it is very difficult to make standard recommendations. As a result, it is still impossible to embody IPM strategies in a product that can be mass-produced and mass-marketed.

The case of precision agriculture also shows the importance of public sector R&D. New technologies such as yield monitors, variable rate chemical application equipment, and geographic information system (GIS) technology, promise to increase agricultural productivity while reducing nutrient runoff. They do this by adjusting fertilizer application rates with existing soil fertility, to match crop needs more closely. However, actual crop needs are not well understood. Most fertilizer recommendations are simple rules that do not take soil and topographic characteristics into account. A more sophisticated understanding of how soils affect crop growth is needed for these precision technologies to result in yield increases and reduce fertilizer costs, so as to justify their expense. Improving the understanding of soils and crop growth is a job for the public sector (National Research Council 1997).

Technologies that enhance environmental protection and resource conservation tend to be highly location-specific, as we have seen. One implication is that agricultural R&D and human capital enhancement efforts must be correspondingly location-specific. In other words, it is essential to develop and disseminate management strategies, farming practices, new knowledge, and farming skills adapted to local conditions. This may present a problem for less industrialized countries, because it means that each country must maintain its own national R&D system (or, in some cases, participate in regional R&D efforts with neighboring countries with similar agriculture). The general scientific literature and the experiences of other countries can provide valuable guidance in developing environmentally friendly, resource-conserving farm management strategies. However, local research is needed to complete their development, and local extension is needed to ensure that they are widely adopted.

Unintended Consequences and the Importance of Proper Pricing

New technologies are essential if agriculture is to protect environmental quality and conserve resources. However, simply introducing new technology will not automatically resolve environmental and resource degradation problems. The fundamental reason is that new technologies frequently have broader consequences that are difficult to anticipate. Often, they have uses their inventors failed to foresee. An example is personal computers and the Internet. Agriculture is not immune to such unintended consequences. In fact, agriculture is so complex and so diverse that one might well expect unintended consequences to be more common in farming than in other sectors of the economy.

The case of boll weevil eradication in the southern United States illustrates this point. This technology was a characteristic "win-win" technology, promising to improve at the same time farm profits and environmental quality. Heavy infestations of boll weevil forced cotton growers throughout this region to spray their fields with insecticides many times every season. This damaged non-target species, and the environment generally.

In response, the U.S. Department of Agriculture devised an eradication program. During the initial year, cotton fields were sprayed with insecticides during the fall to suppress overwintering weevils. The following spring, all fields with substantial weevil populations (as determined by pheromone traps) were again treated with insecticides. Fields were treated again in the fall of the second year, and buffer zones were established between eradicated and non-eradicated areas. During the third and subsequent years, monitoring with pheromone traps continued and insecticides were sprayed only in cases of spot reinfestation.

The program requires the cooperation of all farmers in the affected area. It was introduced county by county after referenda, provided a majority of cotton growers voted to join. The program worked quite well. The use of insecticide fell dramatically in existing cotton fields, and the profitability of cotton farming increased (Carlson, Hammig and Sappie 1989, National Research Council 1996).

But something else happened, too. The boll weevil problem had led many farmers to reduce their cotton acreage and plant other crops instead. The eradication program made cotton once again more profitable than competing crops. The total cotton acreage in the region rose, and total insecticide use rose along with it, because cotton is more pesticide-intensive than the alternative crops these farmers had been planting. As a result, the program's overall effect on environmental quality is not clear.

The introduction of low-volume irrigation methods in the United States had similar kinds of unintended consequences. Low-volume irrigation methods are water conserving, at least at the field level. By reducing the volume of water delivered at any point in time, they permit water application to be matched more closely with crop uptake. This gives more efficient water use. Drip and similar low-volume irrigation methods also allow irrigation on hillsides (Caswell and Zilberman 1986, Green et al. 1996) and sandy soils (Lichtenberg 1989) where gravity-based application methods do not work well.

In California, few farmers used drip irrigation to replace less efficient gravity-based systems. Instead, they used drip irrigation for new fruit and nut orchards on hillsides (Caswell and Zilberman 1985). In the High Plains, the introduction of center-pivot irrigation systems resulted in an expansion of irrigated corn production, using groundwater from a fossil aquifer that could not be replenished (Lichtenberg 1989). Farmers in river valleys continued to use gravity-based systems. In both cases, the introduction of low-volume irrigation systems made water scarcity worse, rather than alleviating it.

Improper pricing was the main reason why these technologies failed to perform as expected, in terms of reducing pesticide and water use. In the United States, pesticide prices are based on the cost of production. Because many of them are protected by patents, they are also influenced by competition from similar pesticides, other means of pest control, and crop profitability. They do not, however, include adjustments for any environmental damage they cause. As a result, too many farmers find cotton more profitable than less pesticide-intensive crops. Similarly, the cost of irrigation water in California is kept artificially low by government subsidies and restrictions on water transfers. The cost of groundwater in the High Plains is lower than it should be, because of a lack of clearly defined property rights. As a result, too many farmers in California find gravity-based irrigation more profitable than drip, while too many farmers in the High Plains find irrigated corn more profitable than dryland wheat or grazing.

Taxes on inputs that damage the environment can help ensure that new, more environmentally friendly technologies fulfill their potential. Taxas on pesticides according to their toxicity, persistence, formulation, and other indicators of environmental and human health risk, may induce farmers to choose more socially efficient pest control methods (Lichtenberg 2002). Taxes on fertilizers can help reduce excess applications.

For resources such as water, establishing clear, exclusive and transferable water rights, and the creation of competitive water markets, can be the most important step for ensuring pricing at scarcity value. Water rights and water markets may be difficult to achieve, especially in less industrialized countries with imperfectly functioning market systems. Even in developed countries with well-functioning market systems, it may be necessary for governments to limit withdrawals of water to protect water quality or wildlife. Alternatives for improving water pricing include taxes on energy used in pumping, or heavier taxes on more water-intensive crops (as an incentive for reducing water use).

Measures that raise the prices of environmentally damaging inputs or of depleted resources eliminate the unintended consequences of the kind seen in the boll weevil eradication and low-volume irrigation cases. They induce farmers to both reduce environmentally damaging inputs on existing fields, and shift away from crops and cultivation methods that are environmentally damaging. Simply introducing more efficient new technologies, in contrast, may create opposing incentives, e.g., less pesticide use per hectare of cotton, but more land allocated to cotton. Thus, requiring the use of environmentally protective technologies that appear attractive at the farm level may turn out to worsen environmental problems overall.

Not all new agricultural technologies that protect the environment and conserve resources are "win-win", in the sense that they increase agricultural production as well. Moreover, some technologies that are "win-win" in a long-term sense (i.e., give increased profitability over their lifetime) may require investments or have immediate costs that make them unattractive to farmers in the short run. Thus, public sector R&D can produce technologies to enhance environmental quality and resource conservation, but may not be enough to ensure that they are actually used. Appropriate pricing of environmentally damaging inputs and scarce natural resources is usually essential to achieving adoption such technologies.

"Getting prices right", i.e., devising ways of making farmers pay for the pollution (or resource depletion) they cause, is the standard economist's prescription for inducing compliance with environmental quality standards efficiently. The wide range of agricultural production conditions also make price mechanisms desirable. As is well known, the advantage of prices over direct controls increases with the heterogeneity of the regulated industry.

Governments and environmental groups, is contrast, have tended to favor direct control. For example, they want firms to install pollution control equipment. They lend to believe that compliance is easier and cheaper to verify. In agriculture, direct controls take the form of requiring that farmers use "best management practices" such as IPM, nutrient management, conservation tillage etc. The complexity and variability of agriculture, however, mean that government enforcement costs are likely to be higher for direct controls. Agricultural production is typically carried out by large numbers of producers spread out over a wide geographic area. This makes inspection for compliance costly. Moreover, the use of most environmentally protective technologies can not be easily observed by periodic inspections. Most involve changes in management rather than the installation of permanent equipment or changes in landscape. For example, one can't tell from casual inspection whether a farmer is using IPM to control pests. Requiring farmers to use IPM cannot be enforced without expensive, continuous monitoring of every farm. Taxing pesticides, in contrast, makes them more expensive relative to labor and management. This makes IPM, which substitutes labor and management for chemicals, more attractive.

The case of regulations for nutrient management illustrates this point. In many countries, intensive livestock production is a significant pollutor of rivers, lakes and groundwater. Some countries have tried to reduce nutrient emissions from livestock farms by direct regulation. Denmark, for example, requires livestock producers to install manure storage facilities with a capacity of at least six months' supply. In this way, farmers can store manure produced during the winter months until the spring, when it can be used to fertilize crops.

However, chemical fertilizers are so much cheaper and more reliable as a source of nutrients, that livestock producers continue to dispose of manure, rather than apply it as fertilizer. Compliance with the storage facility construction requirement is easy to enforce because the facilities are easily seen. Compliance with the provision that manure be used in place of chemical fertilizers is not easily seen, and is thus not actively enforced. As a result, the regulation accomplishes little in the way of reducing nutrient emissions (Dubgaard 1993).

An alternative to the Danish policy would be to impose a tax on chemical fertilizers high enough to make it profitable for farmers to use manure instead of chemical fertilizers. The would reduce the total amounts of nutrients applied, and thus the nutrient pollution of ground and surface waters. Enforcement would be cheaper because less monitoring of farmers would be needed.

Policies based on incentives are more likely to reduce production costs than direct controls, while achieving the same improvements in environmental quality or resource conservation. Incentives give farmers the freedom to choose the least costly means of compliance. Agricultural production conditions vary from farm to farm because of local differences in soils, water availability etc., as well as differences in farmers' human capital. As a result, the least costly means of compliance — that is, the appropriate combination of best management practices — tends to vary markedly from farm to farm. Policies based on incentives, such as taxes on polluting inputs, give farmers the freedom to select the most profitable levels of inputs to suit their own specific circumstances. In contrast, to be at all meaningful, direct controls have to restrict farmers' choices. For this reason, they necessarily limit the ability of farmers to meet environmental targets for the lowest possible cost.

Harmonizing Agricultural, Environmental, and Resource Conservation Policies

Agriculture is central to human civilization. Without agriculture, stable human settlements, let alone nation states, are impossible to maintain. Ensuring adequate and reliable food supplies is thus a central concern of every country. In many countries, agriculture is still the main economic activity, and farming is central to general economic policy goals. In those countries, farming remains the principal type of employment. For this reason, policies concerned with labor and employment are closely linked to agriculture. Agriculture is also the principal form of land use in many countries. This means a close relationship between agricultural and land use policies.

Nearly every country has adopted a set of policies relating specifically to the farm sector. Unfortunately, many of these policies have had an adverse impact on environmental protection and resource conservation. Furthermore, they often interfere with policies aimed specifically at protecting the environment and conserving resources. Thus, in most countries, changing policies so as to enhance environmental protection will require a fundamental restructuring of the agricultural sector.

Support and Stabilization Policies

In high- and middle-income countries, the main agricultural policy goal is to maintain the farm sector by keeping farm incomes and agricultural commodity prices above free market levels, and by stabilizing prices and incomes. Japan, Korea, and Taiwan, for example, keep agricultural commodity prices high largely by restricting imports. Supporting commodity prices in this way creates an incentive to farm more intensively, that is, apply larger amounts of agricultural chemicals per unit of area cultivated. This is likely to worsen problems of chemical runoff and leaching. Japan's farm sector uses almost three times as much fertilizer per hectare as that of the United States, while Korea uses more than four times as much fertilizer and nine times as much pesticide (United Nations Development Program et al. 2000). Price support policies also tend to induce farmers to irrigate more intensively. This can mean a scarcity of surface water and/or groundwater depletion, in addition to water quality problems.

Even income support policies that do not encourage farmers to use higher inputs can contribute significantly to environmental and resource degradation, simply by maintaining farm output above desirable levels (Lichtenberg 2002). For example, farm income support programs can promote the conversion of land to agricultural uses. This can lead to deforestation, the drainage of wetlands, and erosion from the cultivation of virgin prairie. Farm income support may also cause farmers to apply chemical fertilizers and pesticides to a greater expanse of crop area. This in turn may cause further chemical runoff and leaching problems. It may also distort cropping patterns in favor of crops which use more pesticides, fertilizers and, in some cases, water (Lichtenberg 1989, Wu and Segerson 1995).

Policies that stabilize agricultural commodity prices can cause environmental problems, even if they do not actively support prices. The United States, for example, has a crop loan program that sets a floor under agricultural commodity prices in which the loan rate is set low enough to exceed market prices only in exceptional circumstances. It also offers heavily subsidized crop insurance, and disaster assistance that amounts to free insurance. By reducing risk, these programs may encourage farmers to intensify their use of fertilizers and pesticides (Horowitz and Lichtenberg 1993), and to convert environmentally sensitive land in high-risk areas to crop production.

In fairness, it should be noted that price and income support programs can have positive effects on environmental quality. In some cases, agricultural output and environmental goods and services complement each other, as when cropland also provides beautiful scenery. Price and income support policies in developed countries promote the preservation of farmland. In this way, they help provide attractive scenery and open spaces which are often highly prized, especially near urban areas. Similarly, if farmers are bearing all the consequences of resource depletion, higher agricultural commodity prices may give them an incentive to conserve resources, while income supports may make it feasible for them to do it.

Consider the case of soil erosion. Price supports make production more profitable, and thus enhance erosion (and make conservation more costly). At the same time, price supports increase expected future crop prices, making land more valuable and increasing the expected gains from conservation. Since erosion reduces the value of land by reducing its productivity, it becomes more costly as farming becomes more profitable.

If farmers have complete property rights in their land, and if land and capital markets are well developed, farm price supports may actually promote soil conservation (Lichtenberg 2002, LaFrance 1992, Clarke 1992, Barrett 1991).

Less industrialized countries frequently adopt two distinct kinds of agricultural policies. One set of policies aims to promote the production of export crops. Another set attempts to keep urban food supplies cheap at the expense of farm incomes. Export crops are generally given more fertilizer and pesticides than staple foods crops. Moreover, many of these countries subsidize agricultural chemicals and irrigation water. Such policies can substantially worsen chemical runoff and leaching problems.

The case of the Aral Sea is an example of the problems from such policies (Micklin 1988). From the mid-1950s, the governments of the Soviet Union (subsequently Uzbekistan and the Central Asian republics) strongly encouraged irrigated production of the cash crops cotton and rice, as a means of increasing export earnings. Water was diverted away from the rivers feeding the Aral Sea. As a result, less water flowed into the Aral Sea, and the water that did reach it contained high concentrations of fertilizers, pesticides and heavy metals. Water quality was worsened by drainage from water applied to flush accumulated salts from cotton farms. As a result, the Aral Sea has lost 75% of its volume and 50% of its surface area. Water quality has continued to worsen. The Sea's fishing industry has collapsed. Dust storms in the area are causing widespread heath problems.

The Need to Harmonize Agricultural, Environmental, and Resource Policies

Efforts to protect the environment and conserve resources have little chance of succeeding if there are long-standing agricultural policies that create strong opposing incentives. It is necessary for governments to restructure their existing farm-sector policies. Price supports, input subsidies and the like should be adjusted to promote environmental quality and resource conservation goals. At the very least, these policies must be stripped of features that actively encourage environmental degradation and the overexploitation of natural resources.

In high- and middle-income countries, price supports and import restrictions create incentives to farm too much land too intensively. In these countries, one would expect trade liberalization to reduce environmental degradation and resource depletion. Trade liberalization allows production to be shifted to regions with comparative advantages, such as higher natural soil fertility, a better climate, and lower pest pressure, as well as greater availability of natural resources. Considered from this perspective, trade liberalization allows farming to be restructured along more natural lines, that is, in greater harmony with existing natural advantages. Replacing price supports with income supports independent of yield (e.g., the U.S. deficiency payment program from 1985 through 1995) would help reduce intensive margin effects such as the overuse of chemicals (though not extensive margin effects such as the overexpansion of agriculture into new areas).

In low-income countries, the farm credit system may be one of the most important places to start reconciling agricultural production and environmental protection. Agriculture's dependence on natural conditions often makes it too risky to be attractive to private lenders. Thus, many countries have established separate farm credit systems backed by the government to provide both short-term production loans and long-term investment credit. Lending criteria could be changed to give higher priority to investments which increase environmental protection and/conserve resources.

In some cases, the availability of credit may be the key constraint preventing farmers from making this kind of investment. When farmers have strong property rights over land, they have a strong incentive to invest in soil conservation, as a means of preserving the value of their land. Farmers may wish to invest in soil conservation even if they do not hold individual title over their land. In low-income countries, farmers' investment in soil conservation is limited mainly by lack of credit. Several case studies have noted that the main reason why "land-to-the-tiller" programs increase soil conservation investment is because they give farmers access to credit — not because they increase security of land tenure (Feder and Onchan 1987, Migot-Adholla et al. 1991, Place and Hazell 1993, Gavian and Fafchamps 1996).

Conclusion

Resource depletion and environmental degradation have emerged as major problems facing agriculture. In many parts of the world, they are becoming severe enough to threaten the long-term viability of farming and food production. While new technologies are needed which are friendly to the environment, we also need well-designed policies which are implemented effectively. Governments will play an essential role in developing environmentally-friendly farming practices, and in helping farmers to acquire the enhanced management skills they will need to use these practices. The private sector will not play much of a role. Returns to R&D into improved farm management are too low to justify private investment.

New technologies are necessary, but they are not enough. Governments must also ensure that farmers have the proper economic incentives to adopt these new practices, and to make the necessary investment. Economic theory and actual experience suggest that taxes on those inputs that create environmental degradation problems will be more effective than either voluntary measures or direct controls. Thorough reform of agricultural policies will be necessary.

Price supports and import restrictions may cause unacceptably high levels of environmental degradation. Trade liberalization and shifts to income supports that are independent of yields should help improve environmental quality and resource conservation. More generally, agricultural policies should be restructured so that environmental protection and resource conservation are made central to their design.

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