REFORMING AGRICULTURAL SUBSIDIES “No Regrets” Policies for Livelihoods and the Environment

WRI WHITE PAPER REFORMING AGRICULTURAL SUBSIDIES “No Regrets” Policies for Livelihoods and the Environment ANTONIO LA VINA LINDSEY FRANSEN 10 G Street, NE Suite 800 Washington, DC 20002 PAUL FAETH www.wri.org YUKO KURAUCHI WRI WHITE PAPER REFORMING AGRICULTURAL SUBSIDIES: “NO REGRETS” POLICIES FOR LIVELIHOODS AND THE ENVIRONMENT Antonio La Vina Lindsey Fransen Paul Faeth Yuko Kurauchi washington, dc JEN LESAR EDITOR HYACINTH BILLINGS PUBLICATIONS DIRECTOR MAGGIE POWELL LAYOUT Each World Resources Institute report represents a timely, scholarly Cover Photographs: treatment of a subject of public concern. WRI takes responsibility for Cotton Harvest: FAO photo choosing the study topics and guaranteeing its authors and researchers freedom of inquiry. It also solicits and responds to the guidance of Corn Harvest: Photo by Bruce Fritz, USDA Agricultural advisory panels and expert reviewers. Unless otherwise stated, however, Research Service all the interpretation and findings set forth in WRI publications are Forest: FAO/17810/A. Conti those of the authors. Meeting: FAO photo Copyright © 2006 World Resources Institute. All rights reserved. ISBN 1-56973-617-0 Printed in the United States of America on chlorine-free paper with recycled content of 50%, 20% of which is post-consumer. Contents ACKNOWLEDGMENTS . .iv EXECUTIVE SUMMARY . .1 INTRODUCTION . .2 SETTING THE STAGE: AGRICULTURE, POVERTY, TRADE AND THE ENVIRONMENT . .5 WHAT ARE THE IMPACTS OF AGRICULTURAL SUBSIDIES ON THE POOR AND THE ENVIRONMENT? . .6 What are the Impacts in Developed Countries? What are the Impacts in Developing Countries? REFORMING DEVELOPING COUNTRY SUBSIDIES: POTENTIAL CONSEQUENCES FOR LIVELIHOODS AND THE ENVIRONMENT . .9 Impacts in Subsidizing Countries Impacts in Developing Countries THE ROLE OF A DOMESTIC POLICY REFORM AGENDA . .13 Empowering Small-Scale Farmers to Use and Protect Natural Resources Mainstreaming Poverty Alleviation and Environment Protecting Ecosystems for Human Well-being Best Practices in Governance CONCLUSION . .21 REFERENCES . .24 NOTES . .27 Acknowledgments This White Paper was produced as part of the World Frances Seymour for review and support of this publi- Resources Institute’s Poverty, Agriculture and Trade cation. Xander Slaski provided research assistance. Objective. An earlier version of this publication, enti- The authors and the World Resources Institute also tled Beyond The Doha Round and the Agricultural extend their thanks to the reviewers of the manu- Subsidies Debate: Toward a Reform Agenda for script, Vice Yu, Ann Thrupp, and Kimberly Pfeifer. Livelihoods and the Environment, was launched at the Their comments provided valuable insight and helped fifth ministerial meeting of the World Trade to improve the document; the final paper does not Organization in Hong Kong in December, 2005. necessarily reflect their views. The authors gratefully acknowledge colleagues Peter This publication was made possible through the gen- Veit, Liz Marshall, and Jenny Guiling for review and erous support of the Netherlands Ministry of Foreign revision of this manuscript; and David Jhirad and Affairs. REFORMING AGRICULTURAL SUBSIDIES 1 EXECUTIVE SUMMARY Trade can be an effective vehicle for poverty reduction (Cline 2004), but good governance, at both interna- Agricultural subsidies are among a number of factors tional and national levels, is necessary so that determining whether and how agriculture can help increased trade benefits the poor, and prevents or the poor and protect ecosystems. Reforming the cur- minimizes ecosystem degradation (WRI 2005). This rent agricultural subsidies system in developed coun- White Paper examines what reforms developing tries, a central goal of the Doha Round1 negotiations countries need to implement so that they can capital- of the World Trade Organization, provides an oppor- ize on reductions in developed country subsidies. It tunity to generate a number of positive impacts: for recommends that countries adopt and implement a poor farmers in developing countries whose ability to domestic policy reform agenda that is based on a compete is hampered by subsidy-driven overproduc- national assessment of the potential impacts of global tion in rich countries; for taxpayers and consumers in trade decisions on ecosystem health and human well- developed countries faced with rising deficits; for the being. The paper also recognizes the necessity of environment in developed countries where subsidies cooperation and support from development agencies contribute to ecosystem degradation; and, possibly, and other international organizations in order to for the environment in developing countries where overcome the resource constraints that will be faced poverty is one driver of environmental degradation. by many developing countries in the implementation But an agreement to reduce subsidies at the interna- of such reforms. While every country will have to tional level does not guarantee that the poor and the develop its own package of reforms based on its environment will benefit; the realization of benefits unique physical, socio-economic, and political cir- will require the implementation of strategic domestic cumstances, the paper identifies four areas to be policies in developing nations. addressed by policy-makers and supported by donors. Even in the absence of subsidy reduction through the These include policies designed to: Doha Round, countries can take steps to make agriculture work for the poor and for the environment. ● Empower small-scale farmers to use natural Without a WTO agreement, there will still be resources sustainably and strengthen their ability immense pressure on developed countries to reduce to negotiate with other actors in the market with their agricultural subsidies: from developing coun- respect to the use of land and other inputs to agri- tries, which are expected to file more cases in the cultural production; WTO challenging these subsidies, and from within developed countries because of domestic or regional ● Mainstream poverty alleviation and environmental (in the case of the European Union) competition for considerations into sectoral plans focused on agri- scarce budgetary resources. Moreover, without a new culture; WTO Agreement, trade-induced changes that affect ● Promote ecosystem health for human well-being, agriculture are inevitable, whether they come in the in particular ecosystems’ ability to provide essen- context of global, regional, or bilateral trade agree- tial services; and ments or through sheer market changes. Domestic policies that make agriculture pro-poor and pro-envi- ● Promote best practices in governance. ronment are ‘no regrets’ policies, and countries that adopt them are not only likely to be more prepared The paper concludes with a set of policy recommen- for the changes that will come with a new trade dations under each of these categories. agreement, but will be better able to position their agricultural sectors to be effective agents for poverty alleviation and environmental sustainability. 2 REFORMING AGRICULTURAL SUBSIDIES Policy Recommendations Laws, policies, and programs to empower poor farmers should: ● Introduction of new technologies; and ● Transport services in rural areas. ● Provide for rights-based land tenure policies, including agrarian reform laws and recognition of indigenous peoples’ territories; Laws, rules, and regulations related to agriculture that protect ecosystems and their ability to provide for essential ecosystem serv- ● Provide a supportive environment for community enterprises, ices include: such as production and marketing cooperatives; ● Establish economic incentives for poor farmers to use land and ● Support for soil conservation practices that address land degra- other resources sustainably, including direct compensation for dation and are designed for the benefit of poor farmers; conservation activities, public goods, and ecosystem services; ● Facilitation of crop diversification, recycling and conservation of and soil nutrients and organic matter, and ecologically-based inte- ● Allow for payments to landowners in return for land management grated pest and disease management; that protects ecosystem services, such as water quality and car- ● Flexibility and diversity in marketing standards to enable retail bon storage. food stores and distributors to diversify varieties of produce and Macroeconomic policies and measures that integrate poverty allevia- reduce wasteful cosmetic standards for foods in markets. tion and environmental goals should include policies that regulate: Reforms to promote better governance of the agricultural sector include: ● Pricing and trading of farm products; ● Property or access rights over land and water; ● Accountable decentralization; ● Taxation of land and agricultural assets; ● Establishment of inter-agency and multi-stakeholder processes in agriculture; and ● Rural credit and insurance; ● Strengthened enforcement of environmental laws, rules, and reg- ● Use of agrochemical inputs; ulations. This reform agenda, outlined in the following pages, INTRODUCTION is relevant to development organizations such as In December 2005, trade ministers and other offi- bilateral assistance agencies, multilateral cooperation cials from all over the world assembled in Hong institutions, private foundations, and development Kong to attend the Sixth Ministerial Conference of NGOs. It can serve as a guide for these organizations’ the World Trade Organization (WTO). For six days, financial and technical

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