Fiscal policies to support Policy Brief sustainable agriculture

Agriculture and the SDGs highlight, agriculture subsidies often tend to disproportionately benefit large farmers/corporations and there are more effective ways of providing The agriculture and food production sector is central to the 2030 Agenda for support to people at risk of poverty and hunger. Sustainable Development. As the world’s largest employer, the sector can Addressing these pricing distortions and perverse incentives in the play an important role in efforts to reduce poverty, promote social equity agricultural sector will be critical for delivering several SDGs including and improve people’s livelihoods. However, unsustainable agricultural SDG2 (Zero Hunger), SDG12 (Responsible Production and Consumption), practices and associated land-use change have contributed to biodiversity SDG13 (Climate Action), SDG15 (Life on Land which includes targets on loss, water insecurity, climate change, soil and water pollution, threatening delivery of several Sustainable Development Goals (SDGs). For example, forestry and biodiversity). The SDG targets recognize the importance of studies have found that agriculture related land-use change is causing over correct food pricing to prevent trade restrictions and distortions in world 70 per cent of tropical deforestation1 and accounts for around one quarter agricultural markets, including the elimination of all forms of agricultural of all greenhouse gas emissions. Agriculture and food production can also export subsidies (T2.b). have significant impacts on human health and well-being. For example, pesticides are among the leading causes of death by self-poisoning, Role of fiscal policy reforms for particularly in low- and middle-income countries2, with related economic sustainable agriculture implications on health care costs and reduced productivity among others. These impacts are often not visible as they are not traded in the market and Through pricing measures, fiscal policies cancreate incentives for do not have a market price3, leading to price distortions which influence the sustainable, productive and climate resilient agriculture. For instance, tax decisions of individual farmers, businesses, and consumers. exemptions can encourage the development of organic farm products as In some cases, prices are further distorted by deliberate policy in Argentina which in 2016 removed export taxes on organic products 10 interventions such as subsidies. According to the OECD, between 2016 of plant origin to promote organic exports . and 2018, governments in 53 countries spent USD 705 billion a year Fiscal instruments, such as targeted direct payments, can facilitate subsidizing agricultural producers with over 70 per cent of this support ecosystem restoration and biodiversity conservation as in Switzerland found to strongly distort farm business decisions4. A large share of this where savings from agricultural subsidy reforms are used to support a support is in the form of energy subsidies for irrigation which reduce direct payment system that promotes ecosystem services and sustainable incentives to conserve water, influence cropping patterns and indirectly agriculture (see Box 1). contribute to pricing distortions in the agriculture sector. For example, in Fiscal reforms generate substantial public revenues which can be India and Mexico subsidized electricity for farmers to pump groundwater used for different purposes, such as supporting more sustainable practices 5 has led to serious groundwater depletion . Such fiscal instruments favour in the sector (e.g. use of organic fertilizers, application of agroecological unsustainable production and can promote deforestation, overfishing, farming techniques) and supporting delivery of the SDGs as with the case urban sprawl, and wasteful water use among others6. They also have of reforming pesticide subsidies in Indonesia (see Box 1). Fiscal policies fiscal implications, accounting for a large share of public resources and can mobilize other sources of financing for sustainable agriculture. reducing funds for other development priorities. For example, in India, For example, Costa Rica uses revenues from fuel taxes to support forest fertilizer subsidies accounted for the second-largest government transfer conservation (see Box 1), while Mexico’s hydrological environmental at over INR 700 billion (USD10 billion) in 2018/197. services (PSAH) programme is financed by an earmarked share of water- While typically motivated by a desire to enhance food security and use fees charged by municipalities. boost agricultural productivity, such subsidies can create perverse Fiscal policy reforms in the agriculture sector can support climate incentives, encouraging activities with serious environmental and change commitments and have been included in some countries’ health consequences and undermining commitments in other areas. For nationally determined contributions (NDCs) to the Paris Agreement. For example, agriculture subsidies in Brazil (for soy and beef) and in Indonesia example, Uruguay’s NDC includes tax incentives to registered areas with (for palm oil and timber) are over 120 times higher than international funding for forest conservation through REDD+8, and undermine efforts native forests and for investments in low-carbon production capacities to protect forests by supporting an expansion of agriculture production. to promote afforestation, Mongolia’s NDC includes a tax system for Such subsidies can also distort global commodity markets, driving pasture use and India’s NDC includes federal fiscal transfers to states down global crop prices, undermining small farmers’ competitiveness based on forest cover. in the global market and poverty reduction efforts in many developing Fiscal policies can help to create an enabling framework for a more countries. The impact of such subsidies on food prices is complex and sustainable agriculture and food production system, complementing other depends on numerous factors including the national context. For approaches including regulatory instruments, market-based mechanisms, example, a 2017 study found that US farm subsidies have a very small net information tools and voluntary measures. However, subsidy reform in the impact on retail food prices and do not affect food prices in a way that agriculture sector is a sensitive topic, raising concerns about production costs, protects the poor, despite the claims of proponents9. As such assessments impacts on competitiveness, food security, small-holder farmers and poor Copyright © UN Environment 2019 (PAGE) Economy Green on Action for Partnership the as such partnerships and networks existing through partners with incollaboration work this delivers UNEP sector. agriculture the in reforms fiscal green tosupport stakeholders non-governmental and governmental together tobring networks and platforms up sets and webinars organizes workshops, development capacity and training tailored provides also UNEP needs, development capacity and training country-specific on Depending NDCs. and SDGs the of delivery support and sector inthe practices sustainable more encourage agriculture, sustainable towards finance tomobilise environment enabling an create can policies fiscal reforming how on tocountries advice provides and subsidies agriculture-related of impacts the on research global (UNEP) undertakes Programme Environment Nations United The agriculture sustainable UNEP’s policies work fiscal on for tax. tothe farmers among resistance reduce helped mechanism reimbursement This taxes. value land reduced through sector, agricultural tothe tax the from revenues reimbursing while impacts, environmental and risks health human reflect better instance, For and requireshouseholds, plantations and provide additional income to more than 8,000 forest owners. forest 8,000 than more to income additional provide and plantations forestry establish of forests, hectares over 460,000 protect to PES in invested was million 200 USD approx. 2004, 1997 and Between 2000s. of the start by the deforestation negative net to world’s one of highest the from of deforestation rate the reducing with credited Thepaythey receive. scheme has for been the eventually services services ofenvironmental its beneficiaries is objective all that although fuels, on fossil tax from a sales ofrevenues by a share financed is predominantly scheme The landscapes. and of biodiversity protection the and services, hydrological storage, carbon supports Rica Costa in programme (PES) services forenvironmental payment The Rica Costa in services environmental support revenues Fiscal • • • • ways: several in agriculture sustainable and services 2014-17) ecosystem (AP promote Policy Agricultural anew in payments Direct services. ecological and public for payments direct introduced and subsidies agricultural to of reforms aseries undertaken has Switzerland decades two past the Over agriculture for system payment direct new Switzerland’s savings. fiscal in million 100 USD to led also reform The years. over four tons million by three grew production rice time, same At the health. human and on biodiversity impacts negative and environment the in releases toxin reducing country, the in halved applications pesticide reform, the Following incomes. farm and production rice maintain to (IPM) Pest Management of Integrated programme national disseminated widely and by awell-funded accompanied was reform The subsidies. of pesticide removal the included which sector, agriculture the to support reduced Indonesia 1980s, the In Indonesia in subsidies out pesticide Phasing Box 1 meat/milk production on grassland) are promoted within the production systems contribution. systems production the within promoted are on grassland) production meat/milk friendly animal and Environmental linking. habitat and quality biological promoting and for maintaining Contributions for payments direct of the Part for livestock. use their preserve and quality biodiversity high with areas for the payments Direct Denmark Insights from country experiences with fiscal policy reforms reforms agriculture for policy sustainable fiscal with experiences country Insights from reformed its pesticide tax system in 2013 system tax to pesticide its reformed careful design to ensure a just transition ajust ensure to design careful maintenance of cultural landscapes cultural of maintenance sustaining food supply sustaining Green Fiscal Policy Network, Network, Policy Fiscal Green production systems Layout andPrinting atUnitedNations,Geneva –1916197 11-13 Anémones des chemin Resources & Markets Branch &Markets Resources www.greenfiscalpolicy.org 1219 /Geneva Châtelaine www.unenvironment.org T: +41 (0)22 917 43 82 For information: Economy Division 11 , UNEP UNEP Good Growth Growth Good species and habitat diversity diversity habitat and species include an additional contribution for open agricultural cropland and permanent crops. permanent and cropland agricultural for open contribution additional an include (incl. organic farming, extensive crop production, animal-friendly housing, housing, animal-friendly production, crop extensive farming, organic (incl. 12 .

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CBD (2010), Costa Rica Payments for Environmental Services. https://www.cbd.int/ Services. Environmental for Payments (2010),CBD Rica Costa OECD (2017), Reforming agricultural subsidies to support biodiversity in Swit in biodiversity support to subsidies agricultural (2017),OECD Reforming Hosonuma, Noriko, Martin Herold, Veronique De Sy, Ruth S. DeFries, Maria Brock Maria DeFries, S. Sy, De Ruth Veronique Herold, Martin Noriko, Hosonuma, Thorburn, C., (2015) The Rise and Demise of Integrated Pest Management in Rice in in Rice in Management Pest Integrated of Demise C., (2015) and Rise The Thorburn, financial/pes/costarica-pestechnical.pdf agricultural-subsidies-to-support-biodiversity-in-Switzerland.pdf zerland. https://www.oecd.org/environment/resources/Policy-Paper-Reforming- 2015,Indonesia, Insects 6, 381-408; doi:10.3390/insects6020381 ifoam.bio/sites/default/files/ps-07_tax_breaks_for_organic_operators_14_sept.pdf https://www. Operators. Organic for Tax Breaks Summary: (2017),IFOAM Policy agricultural-policy-do-farm-programs-affect-the-nutrition-of-poor-americans/ Institute, January 9, 2017, https://www.aei.org/publication/poverty-hunger-and-us- Enterprise American Americans?, Poor of Nutrition the Affect Programs Farm Do Policy: P., Agricultural US and Wilde, J., D., Hunger, Sumner, Glauber, (2017), Poverty, REDD+ with compatibility forge to Options production: ity Fertilizer-DBT-Research-Note-12-April-18_FINAL.pdf tilizer management https://csisa.org/wp-content/uploads/sites/2/2018/04/ system, IPBES/7/10/Add.1, 2019 May Services, Ecosystem and Biodiversity on Platform of the Intergovernmental Science-Policy services and ecosystem versity 2015 04 Paper Working Instruments. Fiscal on Committee Research GGKP for tion_22217371 oecd-ilibrary.org/agriculture-and-food/agricultural-policy-monitoring-and-evalua org/agriculture-and-food/interim-report/ room/fact-sheets/detail/pesticide-residues-in-food 7(4). doi:10.1088/1748-9326/7/4/044009. Letters Research mental Environ Countries.” Developing in Drivers Degradation Forest and Deforestation of (2012). Romijn. Erika “An and Assessment Angelsen, Arild Verchot, Louis haus, UN-REDD Programme (2015) Policy Brief 7: Fiscal incentives for agricultural commod agricultural for incentives 7: Fiscal (2015) Brief Policy Programme UN-REDD Singh and Ward (2018), Challenges in implementing India’s Aadhaar-enabled fer biodi on report assessment global the of policymakers for (2019)IPBES Summary prepared paper Research Scarcity, Water and (2015), M., Instruments Young, Fiscal 2019, https://www. Evaluation and Monitoring Policy (2019)OECD Agricultural http://www.teebweb. report, interim an &Food: (2015),TEEB Agriculture for TEEB http://www.who.int/en/news- Food., in Residues Pesticide on (2018)WHO Factsheet , One PlanetOne Network UNEP/RMB/EPFU/2019/4 include payments for ecological compensation, compensation, for ecological payments include , and others. The formulation of policy policy of formulation The others. , and ------